Chapter 13 In Class Assignment 2key.docx

# Chapter 13 In Class Assignment 2key.docx - Chapter 13 In...

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Chapter 13 In Class Assignment 2 1. A company operates in an industry with an average P/E multiple of 16x. You expect earnings next year to be \$2.10 per share. The current stock price is \$31. Should you buy or short the stock? \$2.1 * 16 = \$33.60 your intrinsic value is higher than stock price so buy the stock 2. A company has a required rate of return of 15%, and ROE of 18%, and a plowback ratio of 50%. At what P/E will the company likely trade? P/E = (1- b)/k – (roe * b) (1- .5)/.15 – (.18 * .5) = 8.3x 3. If the company in #2 had EPS of \$4, what should the stock price be?
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• Spring '14
• Financial Ratio, P/E ratio

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