a) What is its nominal annual rate of return?
6. Firm Multiples Method Look up the P/E ratio of Google on Yahoo! Finan ce. Look up the EPS of Yahoo! Inc. Based on the P/E ratio of Google, estimate the intrinsic value o f Yahoo! Inc. Is the estimated intrinsic value very far from the actual stock price? Why do you thin k this is so?
On Sept. 20, 4:00 PM EDT P/E ratio of Google = 26.13 EPS of Yahoo! Inc. = 3.63 Intrinsic value of Yahoo! Inc. = P/E ratio of Google * EPS of Yahoo! Inc. = 26.13 * 3.63 = $94.85 Actual stock price of Yahoo! Inc. = $30.92 Estimated Intrinsic Value
The estimated intrinsic value ($94.85) is very far fr om the actual stock price ($30.92). Google’s P/E ratio is not a good estimate to be use d to calculate Yahoo! Inc.’s intrinsic value of the st ock price. The actual P/E ratio of Yahoo! is 8.51, w hich is much lower than Google. We cannot comp are Google with Yahoo! as Google is a much bigge r company with many more subsidiaries (YouTube etc.). Google has 67% of search engine market sha res while Yahoo! only has 11.8%.
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