土豆妮

 

The following data was available for Morris, Inc., for the year ending December 31, 2001:

• Sales per share = $150.
• Earnings per share = $1.75.

• Return on Equity (ROE) = 16%.

• Required rate of return = 12%.

If the expected growth rate in dividends and earning is 4%, what will the appropriate price-to-sales (P/S) multiple be for Morris?

A) 0.037.

B) 0.114.

C) 0.109.

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Profit Margin = EPS / Sales per share = 1.75 / 150 = 0.01167 or 1.167%.

Payout ratio = 1 ? (g / ROE) = 1 ? (0.04 / 0.16) = 0.75 or 75%.

P₀ / S₀ = [profit margin × payout ratio × (1 + g)] / (r ? g) = [0.01167 × 0.75 × 1.04] / (0.12 ? 0.04) = 0.11375.

土豆妮

 

An analyst has gathered the following data about the Garber Company:

• Payout Ratio = 60%.
• Expected Return on Equity = 16.75%.
• Required rate of return = 12.5%.

What will be the appropriate price-to-book value (PBV) ratio for the Garber Company based on return differential?

A) 0.58.

B) 1.73.

C) 1.38.

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The estimated growth rate is 6.7% [0.1675 × (1 ? 0.60)] and PBV ratio based on rate differential will be:
P₀ / BV₀ = (ROE₁ ? g) / (r ? g) = (0.1675 ? 0.067) / (0.125 ? 0.067) = 1.73.

土豆妮

 

An analyst has gathered the following data about Jackson, Inc.:

• Payout ratio = 60%.

• Expected growth rate in dividends = 6.7%.

• Required rate of return = 12.5%.

What will be the appropriate price-to-book value (PBV) ratio for Jackson, based on fundamentals?

A) 1.73.

B) 0.58.

C) 1.38.

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Return on equity (ROE) = g / (1 ? payout ratio) = 0.067 / 0.40 = 0.1675 or 16.75%.

Based on fundamentals:
PBV = (0.1675 ? 0.067) / (0.125 ? 0.067) = 1.73.

土豆妮

A firm has a payout ratio of 35%, a return on equity (ROE) of 18%, an estimated growth rate of 13%, and its shareholders require a return of 17% on their investment. Based on these fundamentals, a reasonable estimate of the appropriate price-to-book value ratio for the firm is:

A) 2.42.

B) 1.25.

C) 1.58.

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土豆妮

What is the justified trailing price-to-earnings (P/E) multiple of a stock that has a payout ratio of 40% if the shareholders require a return of 16% on their investment and the expected growth rate in dividends is 6%?

A) 4.00.

B) 4.24.

C) 6.36.

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P₀/E₀ = (0.40 × 1.06) / (0.16 – 0.06) = 4.24

土豆妮

The Farmer Co. has a payout ratio of 65% and a return on equity (ROE) of 16% (assume that this is expected ROE for the upcoming year). What will be the appropriate price-to-book value (PBV) based on return differential if the expected growth rate in dividends is 5.6% and the required rate of return is 13%?

A) 1.48.

B) 1.41.

C) 0.71.

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Based on return differential:
P₀ / BV₀ = (ROE₁ ? g) / (r ? g) = (0.16 ? 0.056) / (0.13 ? 0.056) = 1.41.