Connect Access Card for Financial Accounting: Information and Decisions
8th Edition
ISBN: 9781259662966
Author: John J Wild
Publisher: McGraw-Hill Education
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Case Study 1: A common measure of the relative value of a company's stock is the price to
earnings ratio... A relatively low PE indicates either a relatively undervalued stock or a
company expected to have low or even negative future earnings growth, while a relatively high
PE indicates either an over-valued stock or a company expected to have robust future earnings
growth. Consider the following companies, for which we want to determine the aggregate PE:
Company
A
B
с
D
PE Ratio
22.50
24.20
20.00
60.00
Find the right statistical tool, then state the reason for using that tool.
Assume that company A is similar in terms of industry and other characteristics to firms B, C, and D. If you are using the average P/E ratio of the comparable firms, what should the price of Stock
A be if it's expected earnings are $2.25 per share?
Stock
Stock B
Stock C
Stock D
$18.93
$18.98
$60.77
$60.95
Price per share
$37.22
$56.92
$421.34
Earnings per share
$2.05
$2.96
$1.09
AVERAGE
P/E Ratio
The stock market valuation/capitalization of a company in the NY Stock Exchange is based on the
a.
Expected company taxes
b.
Expected profitability of the company
c.
Expected yield curve
d.
None of the above
Chapter 11 Solutions
Connect Access Card for Financial Accounting: Information and Decisions
Ch. 11 - Prob. 1DQCh. 11 - How are organization expenses reported?Ch. 11 - Prob. 3DQCh. 11 - What is the difference between authorized shares...Ch. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - Prob. 7DQCh. 11 - Prob. 8DQCh. 11 - Prob. 9DQCh. 11 - Prob. 10DQ
Ch. 11 - Prob. 11DQCh. 11 - Prob. 12DQCh. 11 - What is the didfference between a stock dividend...Ch. 11 - Prob. 14DQCh. 11 - Prob. 15DQCh. 11 - Prob. 16DQCh. 11 - Prob. 17DQCh. 11 - Prob. 18DQCh. 11 - Prob. 19DQCh. 11 - Prob. 20DQCh. 11 - Prob. 21DQCh. 11 - Prob. 22DQCh. 11 - Prob. 1QSCh. 11 - Prob. 2QSCh. 11 - Prob. 3QSCh. 11 - Prob. 4QSCh. 11 - Prob. 5QSCh. 11 - Prob. 6QSCh. 11 - Prob. 7QSCh. 11 - Prob. 8QSCh. 11 - Prob. 9QSCh. 11 - Prob. 10QSCh. 11 - Prob. 11QSCh. 11 - Prob. 12QSCh. 11 - Prob. 13QSCh. 11 - Prob. 14QSCh. 11 - Prob. 15QSCh. 11 - Prob. 16QSCh. 11 - Dividend yield A3 Foxburo Company expects to pay a...Ch. 11 - Prob. 18QSCh. 11 - Prob. 19QSCh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 6ECh. 11 - Prob. 7ECh. 11 - York’s outstanding stock consists of 80,000 shares...Ch. 11 - Use the data in Exercise 118 to determine the...Ch. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 1PSACh. 11 - Prob. 2PSACh. 11 - Prob. 3PSACh. 11 - Prob. 4PSACh. 11 - Prob. 5PSACh. 11 - Prob. 1PSBCh. 11 - Prob. 2PSBCh. 11 - Prob. 3PSBCh. 11 - Prob. 4PSBCh. 11 - Refer to Apples financial statements in Appendix A...Ch. 11 - Prob. 2BTNCh. 11 - Harriet Moore is an accountant for New World...
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- Using the information in the table below, 1.Calculate the Price Earnings Ratio for both stocks. Share Price Per Share Stock X ($) 25 Earnings Per Share 2.00 Stock Y ($) 20 0.67 2. Interpret the results obtained in part above, by highlighting the implications for a firm of having a low P/E or a high P/E.arrow_forwardWhat is par value? Select one: a. The price at which a company's stock is sold b. The dollar amount credited to capital stock when issued c. The lowest price at which a company's stock may be issued d. The highest price at which a company's stock may be issuedarrow_forwardCompute Topp Company's price-earnings (PE) ratio if its common stock has a market value of $22.20 per share and its earnings per share (EPS) is $4.00. Topp's key competitor, Lower Deck, has a price-earnings (PE) ratio of 9.5. For which company does the market have higher expectations of future performance? Complete this question by entering your answers in the tabs below. Price Earnings Ratio Future Performance Compute Topp Company's price-earnings (PE) ratio if its common stock has a market value of $22.20 per share and its earnings per share (EPS) is $4.00. Choose Numerator: Price Earnings Ratio 1 Choose Denominator: 1 1 Price Earnings Ratio = Price Earnings Ratioarrow_forward
- 1. Use of multiples for company valuation requires selecting a set of companies in same economic sector and that have similar growth rates. Comment2. Price/earnings ratio can always be used to obtain estimated price of a share. Comment3. Value of a stock rises with an announcement of an increase in dividends to same extent that it falls with same change in dividend per share. Commentarrow_forwardWhat is the effect of purchasing treasury stock on a company’s earnings per share and return on equity, respectively? (Enter 1, 2, 3, or 4 that represents the correct answer.) No effect and no effect Decrease and decrease Increase and increase Increase and decreasearrow_forwardCalculate the missing information for the following stock. Show your work. Company Earnings per Share Annual Dividend Current Price per Share Current Yield Price-Earnings Ratio Sampson, Inc. ? $0.39 $26.50 ? 22arrow_forward
- Which financial ratio does the DuPont equation help to explain? ROA (return on assets) ROE (return on equity) EPS (earnings per share) DPS (dividends per share)arrow_forwardValuation with price/earnings multiples For each of the firms shown in the following table, use the data given to estimate its common stock value employing price/earnings (P/E) multiples. Firm Expected EPS Price/earnings multiple A $3.00 6.2 B $4.50 10.0 C $1.80 12.6 D $2.40 8.9 E $5.10 15.0arrow_forwardRatio Analysis Consider the following information. Required: Calculate the stockholder payout ratios. (Note: Round answers to two decimal places.) Calculate the stockholder profitability ratios. (Note: Round answers to two decimal places.)arrow_forward
- Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?arrow_forwardValuation with price/earnings multiples For the firm shown in the following table, use the data given to estimate its common stock value employing price/earnings (P/E) multiples. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) The value of the firm's common stock is $. (Round to the nearest cent.) Expected EPS $3.79 C Price/earnings multiple 9.3arrow_forwardThe price of the share / stock that a company observe from a financial market such as Muscat Stock Exchange is known as ..................... Select one: A. Fundamental Price B. Extrinsic Price C. Intrinsic Price D. Market Pricearrow_forward
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