1. Stock valuation methods: Price-earnings Suppose SolarHeat Co., a renewable energy startup is expected to generate earnings of $4 per share next year. If the mean ratio of share price to expected earnings of competing firms in the same industry is 15, then using the price-earnings valuation method, the valuation of the firm's shares is: O $51.00 per share $60.00 per share $61.80 per share $64.20 per share Which of the following are limitations to the price-earnings model? Check all that apply. It can result in inaccurate valuations when the firm's future earnings are incorrectly estimated. It assumes that uncertainty cannot be accounted for because it doesn't allow expectations about investors' required rate of return to change. It can result in inaccurate valuations when investors rely on an industry price-earnings ratio that uses a collection of firms that is too broad. It can result in inaccurate valuations when the firm being evaluated retains most of its earnings, rather than distributing them as dividends.
1. Stock valuation methods: Price-earnings Suppose SolarHeat Co., a renewable energy startup is expected to generate earnings of $4 per share next year. If the mean ratio of share price to expected earnings of competing firms in the same industry is 15, then using the price-earnings valuation method, the valuation of the firm's shares is: O $51.00 per share $60.00 per share $61.80 per share $64.20 per share Which of the following are limitations to the price-earnings model? Check all that apply. It can result in inaccurate valuations when the firm's future earnings are incorrectly estimated. It assumes that uncertainty cannot be accounted for because it doesn't allow expectations about investors' required rate of return to change. It can result in inaccurate valuations when investors rely on an industry price-earnings ratio that uses a collection of firms that is too broad. It can result in inaccurate valuations when the firm being evaluated retains most of its earnings, rather than distributing them as dividends.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:1. Stock valuation methods: Price-earnings
Suppose SolarHeat Co., a renewable energy startup is expected to generate earnings of $4 per share next year. If the mean ratio of share price to
expected earnings of competing firms in the same industry is 15, then using the price-earnings valuation method, the valuation of the firm's shares is:
$51.00 per share
$60.00 per share
$61.80 per share.
$64.20 per share
Which of the following are limitations to the price-earnings model? Check all that apply.
It can result in inaccurate valuations when the firm's future earnings are incorrectly estimated.
It assumes that uncertainty cannot be accounted for because it doesn't allow expectations about investors' required rate of return to
change.
It can result in inaccurate valuations when investors rely on an industry price-earnings ratio that uses a collection of firms that is too
broad.
It can result in inaccurate valuations when the firm being evaluated retains most of its earnings, rather than distributing them as
dividends.
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