2. You have been asked to analyze three technology companies and have been provided with the following information on the companies: Primary shares Company Zap Tech outstanding Price/share Net Income Number of Options Outstanding Value per option 100 $20 $100 10 $10.00 InfoRock 500 $6 $150 80 $1.50 Lo Software 80 $5 $20 20 $0.50 Assuming that the three companies have the same expected growth rate in net income and share the same return on equity and cost of equity, which of the three companies would you consider the cheapest? Explain why.
2. You have been asked to analyze three technology companies and have been provided with the following information on the companies: Primary shares Company Zap Tech outstanding Price/share Net Income Number of Options Outstanding Value per option 100 $20 $100 10 $10.00 InfoRock 500 $6 $150 80 $1.50 Lo Software 80 $5 $20 20 $0.50 Assuming that the three companies have the same expected growth rate in net income and share the same return on equity and cost of equity, which of the three companies would you consider the cheapest? Explain why.
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
Problem 1PS
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am. 128.
Transcribed Image Text:2. You have been asked to analyze three technology companies and have been provided
with the following information on the companies:
Company
Zap Tech
InfoRock
Lo Software
Primary
shares
Number of
Options
Value per
outstanding
Price/share
Net Income
Outstanding option
100
$20
$100
10
$10.00
500
$6
$150
80
$1.50
80
$5
$20
20
$0.50
Assuming that the three companies have the same expected growth rate in net income
and share the same return on equity and cost of equity, which of the three companies
would you consider the cheapest? Explain why.
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