标题: P/B calculation, problem 12, P. 563, Equity? [打印本页] 作者: Walex 时间: 2011-7-13 13:40 标题: P/B calculation, problem 12, P. 563, Equity?
You are give ROE=0.27, current EPS=$1.36, payout ratio=0.67, r=11.5%, g=9%
Find justified P/BV.
The way they did it in the answer is simply using P0/V0 = (ROE - g)/(r-g) = 7.2
However, the correct formula is derived as:
P0 = E0(1+g)(1-b)/(r-g), our good old formula. To find P0/BV0, divide both sides by BV0:
P0/BV0 = E0/BV0(1+g)(1-b)/(r-g), since E0/BV0 = current ROE = 0.27, then
P0/BV0 = 0.27(1.09)(0.67)/(.115-0.09) = 7.89
I think their answer is not correct, what do you think?作者: kkn006 时间: 2011-7-13 13:40
I've seen the formula P0/V0 = (ROE - g) / (r - g) a ton of times and to be honest, that's probably what I would have plugged in. But I do see what you're saying, I've noticed that other formula too.
This is the best thing about multiple choice, if you didn't see your "7.89" in the answers, go back to the drawing board.作者: onelife1 时间: 2011-7-13 13:40
ROE = E1/BV0
BV1 = BV0 + E1x(1-b) = B0 x (1+g)
return on equity, the equity that was available at the beginning to produce earnings at the end of the year.作者: SFoyil 时间: 2011-7-13 13:40
pfcfaataf, you are right! But a small correction to the above: ROE = E0/BV1.
It's important to realize that when we say ROE we mean NI divided by latest figure for equity, not beginning equity...so it is current EPS divided by ending BV, or BV1.作者: Otabek 时间: 2011-7-13 13:40
E1 depends on BV0.... your formula is wrong, dreary..
CP作者: tianxin 时间: 2011-7-13 13:40
After making the adjustment as pfc indicated, it is correct. Just divide both side by (1+g) in this equation:
pfcfaataf Wrote:
-------------------------------------------------------
> ROE = E1/BV0
>
> BV1 = BV0 + E1x(1-b) = B0 x (1+g)
>
> return on equity, the equity that was available at
> the beginning to produce earnings at the end of
> the year.
one correction, I switched meaning of b and 1-b in my head (temporarily I hope)
g = b x ROE and ROE stays defined as before ROE = E1/BV0
so
BV1 = BV0 + E1 x b = B0 x (1+g)作者: b_sea93 时间: 2011-7-13 13:40
In RI valuation, these meanings get a bit messy. We need to keep a straight head as to the meaning of ROE0, ROE1, BV0, and BV1.
V0 = B0 + (ROE-r)/((r-g)
What's ROE here? Is it EPS0/B0? or EPS1/B0? or EPS1/B1?作者: bdavi77962 时间: 2011-7-13 13:40
I use P/B = 1 + (ROE-r)/(r-g) as this is sure to be asked. Excess price over book equals excess earnings scaled to PV.作者: iteracom 时间: 2011-7-13 13:40
pfcfaataf Wrote:
-------------------------------------------------------
> it is still ROE = E1/BV0
>
> V0 = B0 + (ROE-r)/((r-g) = B0 x (1 +
> (ROE-r)/((r-g))
>
>
> (1 + (ROE-r)/((r-g)) = (r - g + ROE-r)/(r-g) =
> (ROE - g)/(r-g) = E0/BV0(1+g)(1-b)/(r-g) if you
> want
>
> and you dont really need any calculations, just
> think about B as you initial investment and E as
> your interest/coupon/yield that you receive from
> the initial investment at the end of a period and
> you calculate holding period yield (or how it is
> called) => this is ROE
>
> there are of course some assumptions (to simplify
> it).
there was missing B0 in the middle of :
V0 = B0 + B0 x (ROE-r)/((r-g) = B0 x (1 + (ROE-r)/((r-g))
I am finished, I need to recharge myself.
speak to you tomorrow or today作者: troymo 时间: 2011-7-13 13:40
> I use P/B = 1 + (ROE-r)/(r-g) as this is sure to be asked. Excess price over book equals excess earnings scaled to PV.
This is cool because you can also do the RI valuation, by multiplying by B0:
