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You are analyzing the price/book value ratios for seven firms in the hospitality industry, lative to returns on equity and required rates of return. The treasury bond rate is 6% and e market premium is 3%. The data on the companies are the following: Company P/BV ROE Beta A 0.50 9.0% 0.75 B 1.10 8.5% 0.80 1.20 7.0% 1.30 0.65 12.5% 0.70 1.50 16.0% 0.85 0.90 10.0% 1.40 1.00 18.5% 0.85 i. ii. C D E F G Compute the average P/BV ratio, return on equity, and beta for the industry. Based upon these averages, is the hospitality industry under or overvalued according to book values assuming that the industry overall is in stable growth?

You are analyzing the price/book value ratios for seven firms in the hospitality industry, lative to returns on equity and required rates of return. The treasury bond rate is 6% and e market premium is 3%. The data on the companies are the following: Company P/BV ROE Beta A 0.50 9.0% 0.75 B 1.10 8.5% 0.80 1.20 7.0% 1.30 0.65 12.5% 0.70 1.50 16.0% 0.85 0.90 10.0% 1.40 1.00 18.5% 0.85 i. ii. C D E F G Compute the average P/BV ratio, return on equity, and beta for the industry. Based upon these averages, is the hospitality industry under or overvalued according to book values assuming that the industry overall is in stable growth?

Essentials Of Investments
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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A. You are analyzing the price/book value ratios for seven firms in the hospitality industry, relative to returns on equity and required rates of return. The treasury bond rate is 6% and the market premium is 3%. The data on the companies are the following: Company P/BV ROE Beta A 0.50 9.0% 0.75 1.10 8.5% 0.80 1.20 7.0% 1.30 0.65 12.5% 0.70 1.50 16.0% 0.85 0.90 10.0% 1.40 1.00 18.5% 0.85 i. ii. B C D E F G Compute the average P/BV ratio, return on equity, and beta for the industry. Based upon these averages, is the hospitality industry under or overvalued according to book values assuming that the industry overall is in stable growth?
Transcribed Image Text:A. You are analyzing the price/book value ratios for seven firms in the hospitality industry, relative to returns on equity and required rates of return. The treasury bond rate is 6% and the market premium is 3%. The data on the companies are the following: Company P/BV ROE Beta A 0.50 9.0% 0.75 1.10 8.5% 0.80 1.20 7.0% 1.30 0.65 12.5% 0.70 1.50 16.0% 0.85 0.90 10.0% 1.40 1.00 18.5% 0.85 i. ii. B C D E F G Compute the average P/BV ratio, return on equity, and beta for the industry. Based upon these averages, is the hospitality industry under or overvalued according to book values assuming that the industry overall is in stable growth?
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You are trying to value Alpha S.A., a small, privately owned software company and you are using the information that you have on Beta S.A. a publicly traded software company that you believe is fairly valued by the market given its fundamentals. You have the following information on the two companies: Net Income (in millions) Book Value of Equity (in millions) Price/Book Value Alpha S.A. €70 €400 Not available while is a private company Beta S.A. €100 €800 1.50 Assuming that both companies are in stable growth, growing 3% a year, and have the same cost of equity, estimate the fair value for the equity of Alpha S.A. Does an increase in interest rates always imply lower prices and accordingly lower P/E ratios? Mention the case where this may be true or not. (in 150 words)
Transcribed Image Text:You are trying to value Alpha S.A., a small, privately owned software company and you are using the information that you have on Beta S.A. a publicly traded software company that you believe is fairly valued by the market given its fundamentals. You have the following information on the two companies: Net Income (in millions) Book Value of Equity (in millions) Price/Book Value Alpha S.A. €70 €400 Not available while is a private company Beta S.A. €100 €800 1.50 Assuming that both companies are in stable growth, growing 3% a year, and have the same cost of equity, estimate the fair value for the equity of Alpha S.A. Does an increase in interest rates always imply lower prices and accordingly lower P/E ratios? Mention the case where this may be true or not. (in 150 words)
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