Ashley Homebuilding is about to go public. The investment firm of Blake, Webber, and Company is attempting to price the issue. The home building industry generally trades at a 22 percent discount below the P/E ratio on the S&P/TSX Composite Index. Assume that index currently has a P/E ratio of 25. The firm can be compared to the home building industry as follows: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Ashley 11 percent Increased earnings 2 out of 5 years 25 percent Slightly above avg High Home building Industry 10 percent Increased earnings 3 out of 5 years 40 percent Average Average Assume, in assessing the initial P/E ratio, the investment dealer will first determine the appropriate industry P/E based on the S&P/TSX Composite Index. Then a half point will be added to the P/E ratio for each case in which Ashley Homebuilding is superior to the industry norm, and a half point will be deducted for an inferior comparison. What should the initial P/E be for the firm? (Round the final answer to 2 decimal places.) Initial P/E ratio
Ashley Homebuilding is about to go public. The investment firm of Blake, Webber, and Company is attempting to price the issue. The home building industry generally trades at a 22 percent discount below the P/E ratio on the S&P/TSX Composite Index. Assume that index currently has a P/E ratio of 25. The firm can be compared to the home building industry as follows: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Ashley 11 percent Increased earnings 2 out of 5 years 25 percent Slightly above avg High Home building Industry 10 percent Increased earnings 3 out of 5 years 40 percent Average Average Assume, in assessing the initial P/E ratio, the investment dealer will first determine the appropriate industry P/E based on the S&P/TSX Composite Index. Then a half point will be added to the P/E ratio for each case in which Ashley Homebuilding is superior to the industry norm, and a half point will be deducted for an inferior comparison. What should the initial P/E be for the firm? (Round the final answer to 2 decimal places.) Initial P/E ratio
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:Ashley Homebuilding is about to go public. The investment firm of Blake, Webber, and Company is attempting to
price the issue. The home building industry generally trades at a 22 percent discount below the P/E ratio on the
S&P/TSX Composite Index. Assume that index currently has a P/E ratio of 25. The firm can be compared to the home
building industry as follows:
Growth rate in earnings per share
Consistency of performance
Debt to total assets
Turnover of product
Quality of management
Ashley
11 percent
Increased earnings
2 out of 5 years
25 percent
Slightly above avg
High
Home building Industry
10 percent
Increased earnings
3 out of 5 years
40 percent
Average
Average
Assume, in assessing the initial P/E ratio, the investment dealer will first determine the appropriate industry P/E based
on the S&P/TSX Composite Index. Then a half point will be added to the P/E ratio for each case in which Ashley
Homebuilding is superior to the industry norm, and a half point will be deducted for an inferior comparison.
What should the initial P/E be for the firm? (Round the final answer to 2 decimal places.)
Initial P/E ratio
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