hariRaj

An investor is considering the purchase of Robust Econometrics, Inc., which has a price-to-book (P/B) value ratio of 4.50. Return on equity (ROE) is expected to be 14%, the current book value per share (BVPS) is Sf22.50, and the cost of equity is 12%. The growth rate implied by the current P/B ratio is closest to:

A) 11.43%.

B) 12.57%.

C) 8.00%.

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The P/B ratio of 4.50 and the current BVPS of Sf22.50 imply a market price of Sf101.25(4.5 × 22.5). This implies a growth rate of:

hariRaj

An analyst is considering the purchase of Rylinks, Inc., which has a price to book value (P/B) ratio of 6.00. Return on equity (ROE) is expected to be 13%, current book value per share is $13.00, and the cost of equity is 11%. What growth rate is implied by the current P/B rate?

A) 0.40%.

B) 10.60%.

C) 11.00%.

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The P/B ratio of 6.00 and the current book value per share of $13.00 imply a current market price of $78.00. This implies a growth rate of:
g = r – [{B0(ROE – r)} / {V0 – B0}] = 0.11 – [{13.00(0.13 – 0.11)} / {78.00 – 13.00}] = 0.1060 = 10.60%.
Note that the reading in the curriculum does not provide this expression directly

hariRaj

An investor is considering the purchase of Microscopics, which has a price to book value (P/B) ratio of 4.00. Return on equity (ROE) is expected to be 12%, current book value per share is $12.00, and the cost of equity is 10%. What growth rate is implied by the current P/B rate?

A) 9.33%.

B) 10.00%.

C) 0.67%.

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The P/B ratio of 4.00 and the current book value per share of $12.00 imply a current market price of $48.00. This implies a growth rate of:
g = r – [{B0(ROE – r)} / {V0 – B0}] = 0.10 – [{12.00(0.12 – 0.10)} / {48.00 – 12.00}] = 0.0933 = 9.33%.
Note that the reading in the curriculum does not provide this expression directly.

hariRaj

An analyst is considering the purchase of Delphos Machinery, which has a price-to-book value (P/B) ratio of 8.00. Return on equity (ROE) is expected to be 14%, current book value per share is $12.00, and the cost of equity is 11%. What growth rate is implied by the current P/B rate?

A) 10.57%.

B) 8.43%.

C) 11.00%.

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The P/B ratio of 8.00 and the current book value per share of $12.00 imply a current market price of $96.00. This implies a growth rate of:
g = r − [B0(ROE − r)] / (V0 − B0) = 0.11 − [12.00(0.14 − 0.11)] / (96.00 − 12.00) = 0.1057 = 10.57%.
(Note: the curriculum does not provide this expression directly.)