Why might identical companies located in different regions have different equity value to net income multiples?

The correct answer centers on the influence of different tax rates on the equity value to net income multiples. Tax policies can significantly impact the profitability of a company, influencing how investors perceive its value. Regions with higher tax rates may reduce net income, thereby lowering the equity value relative to that income. Conversely, in areas with lower tax rates, a company may report higher net income, effectively increasing its equity valuation compared to its earnings.

Different tax environments can also affect a company's cash flow, reinvestment strategies, and overall business attractiveness. For instance, a company in a tax-favorable region may have more capital available for growth initiatives, thus potentially enhancing its market value.

Market demand, investment in marketing, and the size of the workforce could also contribute to variations in equity value, but these factors are more indirect compared to the immediate impact of taxation on financial performance. Understanding this relationship between tax implications and net income is crucial for evaluating how regional differences can lead to divergent equity multiples among otherwise identical companies.