1. Compute the average P/E ratio of the industry. Include the ratio of all companies in the computation of industry average. 2. Assuming that Northrop's earnings is P11.50 per share, compute for the company's relative value based on the industry average P/E ratio. * 3. Assume that Grumman is the subject company and all others are comparable companies. How much must be its relative value based on the median P/BV ratio of comparable companies if its book value per share is P62? The ratio of the subject company must not be included in computing the median ratio of comparable companies. *
1. Compute the average P/E ratio of the industry. Include the ratio of all companies in the computation of industry average.
2. Assuming that Northrop's earnings is P11.50 per share, compute for the company's relative value based on the industry average P/E ratio. *
3. Assume that Grumman is the subject company and all others are comparable companies. How much must be its relative value based on the median P/BV ratio of comparable companies if its book value per share is P62? The ratio of the subject company must not be included in computing the median ratio of comparable companies. *
4. Using the the industry averages of the three ratios, would you buy Loral at its current price? (Explanation should be on the handwritten solution) *
Yes
No
![Company/Ratio
P/E
P/BV P/Sales
Boeing
17.30
4.33
6.49
General Dynamics
15.50
3.88
5.81
General Motors - Hughes
16.50
4.13
6.19
Grumman
11.40
2.85
4.28
Lockheed Corporation
10.20
2.55
3.83
12.40
4.65
Logicon
Loral Corporation
3.10
13.30
3.33
4.99
Martin Marietta
11.00
2.75
4.13
McDonnell Douglas
22.60
5.65
8.48
Northrop
9.50
2.38
3.56
Raytheon
12.10
3.03
4.54
Rockwell
13.90
3.48
5.21
Thiokol
8.70
2.18
3.26
United Industrial
10.40
2.60
3.90](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F545f6ed9-761c-4526-aa02-0f88ff5916a7%2F5cdbf0ce-a577-41cc-9b1f-059e1e8f90e5%2F29qbcdl_processed.png&w=3840&q=75)
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)