Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 4DQ
Summary Introduction
To explain: Whether the P/E ratio of the company is well above or well below its latest 5-year average, the reason of P/E ratio of the given company deviates from its historical trend, and whether the stock prices of the given company is undervalued or overvalued on the basis of its P/E ratio.
Introduction:
Profit Earning Ratio (P/E Ratio): It refers to the ratio between the price of a share of the company and the earnings on that share, which is earning per share of the company. In other words, it can be defined as the ratio between the price per share of the company and its earnings per share.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
You are valuing Estelle Company, a private firm that manufactures shop tools, and you have identified several comparable firms that are publicly owned from which to calculate an estimated price-to-earnings multiple to use in your valuation. One of the comparable firms, Comp A, has a market value per share of $53.40, earnings per share for last year of $4.20 per share, a dividend for last year that was $1.10 per share, forecast earnings per share for the next year of $7.05, and a dividend that is expected to be unchanged. The forward price-to-earnings multiple for Comp A is:
a.
17.2
b.
12.7
c.
9.0
d.
7.6
e.
None of the above.
Year-to-date, Yum Brands had earned a 3.90 percent return. During the same time period, Raytheon earned 4.68 percent and Coca-Cola earned −0.55 percent.
If you have a portfolio made up of 35 percent Yum Brands, 30 percent Raytheon, and 35 percent Coca-Cola, what is your portfolio return? (Round your answer to 2 decimal places.)
Year-to-date, Yum Brands had earned a 4.90 percent return. During the same time period, Raytheon earned 5.18 percent and Coca-Cola earned −0.65 percent.If you have a portfolio made up of 30 percent Yum Brands, 40 percent Raytheon, and 30 percent Coca-Cola, what is your portfolio return? (Round your answer to 2 decimal places.)
Chapter 9 Solutions
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Ch. 9.A - For a stock to be in equilibrium, what two...Ch. 9.A - If a stock is not in equilibrium, explain how...Ch. 9.A - RATES OF RETURN AND EQUILIBRIUM Stock Cs beta...Ch. 9.A - Prob. 2PCh. 9.A - Prob. 3PCh. 9 - It is frequently stated that the one purpose of...Ch. 9 - Is the following equation correct for finding the...Ch. 9 - Prob. 3QCh. 9 - Two investors are evaluating GEs stock for...Ch. 9 - A bond that pays interest forever and has no...
Ch. 9 - Discuss the similarities and differences between...Ch. 9 - This chapter discusses the discounted dividend and...Ch. 9 - DPS CALCULATION Weston Corporation just paid a...Ch. 9 - CONSTANT GROWTH VALUATION Tresnan Brothers is...Ch. 9 - CONSTANT GROWTH VALUATION Holtzman Clothierss...Ch. 9 - NONCONSTANT GROWTH VALUATION Holt Enterprises...Ch. 9 - CORPORATE VALUATION Scampini Technologies is...Ch. 9 - PREFERRED STOCK VALUATION Farley Inc. has...Ch. 9 - Prob. 7PCh. 9 - PREFERRED STOCK VALUATION Earley Corporation...Ch. 9 - PREFERRED STOCK RETURNS Avondale Aeronautics has...Ch. 9 - VALUATION OF A DECLINING GROWTH STOCK Maxwell...Ch. 9 - Suppose you believe that the economy is just...Ch. 9 - Prob. 12PCh. 9 - CONSTANT GROWTH You are considering an investment...Ch. 9 - NONCONSTANT GROWTH Computech Corporation is...Ch. 9 - Prob. 15PCh. 9 - NONCONSTANT GROWTH Carnes Cosmetics Co.s stock...Ch. 9 - CONSTANT GROWTH Your broker offers to sell you...Ch. 9 - NONCONSTANT GROWTH STOCK VALUATION Taussig...Ch. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - NONCONSTANT GROWTH Assume that it is now January...Ch. 9 - Comprehensive/Spreadsheet Problem NONCONSTANT...Ch. 9 - Prob. 23ICCh. 9 - Prob. 1DQCh. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Prob. 4DQCh. 9 - Prob. 5DQCh. 9 - Prob. 6DQCh. 9 - The required return on equity, rs, is the final...Ch. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQ
Knowledge Booster
Similar questions
Review the excerpted table of historic returns shown below. The returns have all been annualized after having calculated monthly returns for the previous ten years. In addition, information is provided about the average, the volatility, and the sensitivity of the possible investments.
Time Period #
Market Return
Firm W
Firm X
Firm Y
Firm Z
T-Bill
1
0.333
0.191
0.218
0.955
0.601
0.035
2
-0.144
-0.423
-0.632
-0.747
-0.472
0.039
3
0.143
0.348
0.470
0.379
0.378
0.040
4
0.316
0.871
0.868
-0.192
0.502
0.036
5
0.178
0.912
0.499
0.694
0.364
0.036
6
-0.014
0.532
0.168
-0.671
-0.064
0.038
…
…
…
…
…
…
…
…
…
…
…
…
…
…
119
0.374
0.556
1.014
0.023
0.698
0.037
120
0.173
0.547
0.092
0.658
0.222
0.036
Average Return
0.082
0.113
0.067
0.167
0.121
0.029
Standard…
arrow_forward
Year-to-date, Oracle had earned a -1.44 percent return. During the same time period, Valero Energy earned 7.80 percent and McDonald's earned 0.52 percent. If you have a portfolio made up of 25 percent Oracle, 20 percent Valerp Energy, and 55 percent McDonald's, what is your portfolio return? (Round your answer to 2 decimal places. Write your answer in percentage)
arrow_forward
Review the excerpted table of historic returns shown below. The returns have all been annualized after having calculated monthly returns for the previous five years. In addition, information is provided about the average, the volatility, and the sensitivity of the possible investments.
Time Period #
Market Return
Firm W
Firm X
Firm Y
Firm Z
T-Bill
1
0.333
0.191
0.218
0.955
0.601
0.035
2
-0.144
-0.423
-0.632
-0.747
-0.472
0.039
3
0.143
0.348
0.470
0.379
0.378
0.040
4
0.316
0.871
0.868
-0.192
0.502
0.036
5
0.178
0.912
0.499
0.694
0.364
0.036
6
-0.014
0.532
0.168
-0.671
-0.064
0.038
…
…
…
…
…
…
…
…
…
…
…
…
…
…
59
0.374
0.556
1.014
0.023
0.698
0.037
60
0.173
0.547
0.092
0.658
0.222
0.036
Average Return
0.082
0.113
0.067
0.167
0.121
0.029
Standard…
arrow_forward
Catapult Company has a current book value of $35 per share. As the result of an innovative product, the company earned an ROE of 14 percent. An analyst studying Catapult has estimated that the 14 percent ROE will continue for the next three years. At that point, he is uncertain what will happen to ROE, but he does observe that prior to last year, the share price was at a persistent 10 percent premium over book value, and he assumes this will be the case at the end of his three-year forecast. However, management has maintained an average market value over book value of 30 percent. The firm has a dividend payout ratio of 30 percent and the analyst estimates the cost of equity to be 10.2 percent. The intrinsic value per share for Catapult that the analyst will calculate is closest to:
A. $49.00
B. $47.00
C. $50.00
arrow_forward
Percentages need to be entered in decimal format, for instance 3% would be entered as .03.
Only need the last two questions answered. I added the first one because it says to refer to that question
2. Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year 5?
3. Consider the scenario in Question 2 and suppose your boss believes that Ultimate's annual…
arrow_forward
Percentages need to be entered in decimal format, for instance 3% would be entered as .03.
2.Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year
3.Consider the scenario in Question 2 and suppose your boss believes that Ultimate's annual nonconstant growth rate will only be 12% during the next five years and that the firm's normal growth rate…
arrow_forward
Percentages need to be entered in decimal format, for instance 3% would be entered as .03.
2.Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year 5?
3. Consider the scenario in Question 2, what is the dividend yield in Year 1 and Year 5? What is the expected capital gains yield in Year 1 and Year 5? What is the expected total return (dividend…
arrow_forward
Returns for the Alcoff Company over the last 3 years are shown below. What's the standard deviation of the firm's returns? Year Return2010 21.00%2009 −12.50%2008 25.00%
arrow_forward
Percentages need to be entered in decimal format, for instance 3% would be entered as .03.
i don't need help with the first question. I added it because it it says refer to the 1st question.the last three are the ones I need help with
Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year 5?
Consider the scenario in Question 2, what is the…
arrow_forward
Show the monthly return of the company and S&P 500 in the same graph. What is
your interruption interpretation of the change of return of the company comparing
with the market index?
Calculate the monthly standard deviation and return for both the company and
S&P 500. What is your interruption of the risk and return of the company comparing
with the market index?
S&P 500 last 6 months :
Date
Open
High
Low
Close*
Adj. close**
Volume
01 Apr 2022
4,540.32
4,593.45
4,381.34
4,392.59
4,392.59
37,024,560,000
01 Mar 2022
4,363.14
4,637.30
4,157.87
4,530.41
4,530.41
100,978,320,000
01 Feb 2022
4,519.57
4,595.31
4,114.65
4,373.94
4,373.94
73,167,790,000
01 Jan 2022
4,778.14
4,818.62
4,222.62
4,515.55
4,515.55
73,279,440,000
01 Dec 2021
4,602.82
4,808.93
4,495.12
4,766.18
4,766.18
68,699,830,000…
arrow_forward
Year-to-date, Oracle had earned a −1.34% return. During the same time period, Valero Energy earned 7.96% and McDonald's earned 0.88%. If you have a portfolio made up of 30 percent Oracle, 25% Valero Energy, and 45 percent McDonald's, what is your portfolio return?"
arrow_forward
Bartman Industries' and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2015-2020. The Winslow 5000 data are adjusted to include dividends.
1.) Use the data to calculate annual rates of return for Bartman, Reynolds, and the Winslow 5000 Index. Then calculate each entity's average return over the 5-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, the rates of return for 2015 are not avaiable because 2014 data are not given).
Bartman Industries
Reynolds Inc.
Winslow 5000
Year
Stock Price
Dividend
Holding period return
Stock Price
Dividend
Holding period return
Includes Divs.
Holding period return
2020
$17.25
$1.15
$48.75
$3.00
11,663.98
2019
14.75…
arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781285065137
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781285065137
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Fundamentals of Financial Management, Concise Edi...
Finance
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning