3 Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue. The car rental industry generally trades at a 25 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index. Assume that the index currently has a P/E ratio of 25. The firm can be compared to the car rental industry as follows: nts Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Richmond 15% Answer is complete but not entirely correct. Initial P/E ratio Increased earnings 4 out of 5 years 35% Slightly above average High Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poor's 500 Index. Then a 0.50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a 0.50 point will be deducted for an inferior comparison. On this basis, what should the initial P/E be for the firm? Note: Round your answer to 1 decimal place. 11.5 X Car Rental Industry 10% Increased earnings 3 out of 5 years 40% Average Average
3 Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue. The car rental industry generally trades at a 25 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index. Assume that the index currently has a P/E ratio of 25. The firm can be compared to the car rental industry as follows: nts Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Richmond 15% Answer is complete but not entirely correct. Initial P/E ratio Increased earnings 4 out of 5 years 35% Slightly above average High Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard & Poor's 500 Index. Then a 0.50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the industry norm, and a 0.50 point will be deducted for an inferior comparison. On this basis, what should the initial P/E be for the firm? Note: Round your answer to 1 decimal place. 11.5 X Car Rental Industry 10% Increased earnings 3 out of 5 years 40% Average Average
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
Related questions
Question
Transcribed Image Text:3
Richmond Rent-A-Car is about to go public. The investment banking firm of Tinkers, Evers & Chance is attempting to price the issue.
The car rental industry generally trades at a 25 percent discount below the P/E ratio on the Standard & Poor's 500 Stock Index.
Assume that the index currently has a P/E ratio of 25. The firm can be compared to the car rental industry as follows:
nts
Growth rate in earnings per share
Consistency of performance
Debt to total assets
Turnover of product
Quality of management
Richmond
15%
Answer is complete but not entirely correct.
Initial P/E ratio
Increased earnings 4 out of 5 years
35%
Slightly above average
High
Assume, in assessing the initial P/E ratio, the investment banker will first determine the appropriate industry P/E based on the Standard
& Poor's 500 Index. Then a 0.50 point will be added to the P/E ratio for each case in which Richmond Rent-A-Car is superior to the
industry norm, and a 0.50 point will be deducted for an inferior comparison.
On this basis, what should the initial P/E be for the firm?
Note: Round your answer to 1 decimal place.
11.5 X
Car Rental Industry
10%
Increased earnings 3 out of 5 years
40%
Average
Average
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 1 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education