Will somebody explain to me how was this question done? I can understand that 55/1.25 gets 44 which is the P/E but why is this 44 multiplied by 1 at the explanation given at the back. And where is this 1 coming from?
Perhaphs i’ve focused too much on this question and my mind has gone numb.
1 is the EPS of Duratech (see Exhibit 1 of the vignette)
The multiplication is done because the question asks you to derive the “fair acquisition value per share for Durtech” using comprable transaction analysis, so you must use the multiple for Omegatech (P/E = 44) and multiply by the EPS of Duratech ($1) to get to the value per share ($44).
Thank you ro424! Sometimes the simplest of things cause the most perplexity. Indeed price = EPS x P/E.