DEF Inc. is a mid-sized company in the healthcare sector with a recent increase in earnings and a stable growth forecast. To value DEF Inc., an analyst decides to use market-based valuation approaches, specifically the Price-to-Earnings (P/E) ratio. The analyst finds that comparable companies in the industry are trading at an average P/E ratio of 18. DEF Inc. expects earnings of $5 million this year and has 1 million shares outstanding.

The analyst also considers the book value of equity for DEF Inc., which stands at $40 million. The analyst wants to determine the implied market value of DEF Inc. based on the industry average P/E ratio and analyze if DEF Inc. is undervalued or overvalued compared to its book value.