You are estimating the price/earnings multiple to use to value Paramount Corporation by looking at the average price/earnings multiple of comparable firms. The following are the price/earnings ratios of firms in the entertainment business.
|
Firm |
P/E Ratio |
Firm |
P/E Ratio |
|
Disney (Walt) |
22.09 |
PLG |
23.33 |
|
Time Warner |
36 |
CIR |
22.91 |
|
King World Productions |
14.1 |
GET |
97.6 |
|
New Line Cinema |
26.7 |
GTK |
26 |
A. What is the average P/E ratio?
B. Would you use all the comparable firms in calculating the average? Why or why not?
C. What assumptions are you making when you use the industry-average P/E ratio to value Paramount Communications?