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e of Greater-Fool-Theory (GFT), a cr tio in the cryptocurrency exchange se 20,000 shares outstanding, estimate d the P/E ratio in the cryptocurrenc decrease, or stay the same) if the

e of Greater-Fool-Theory (GFT), a cr tio in the cryptocurrency exchange se 20,000 shares outstanding, estimate d the P/E ratio in the cryptocurrenc decrease, or stay the same) if the

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
Problem 1PS
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**Problem 11: Financial Analysis of Greater-Fool-Theory (GFT)** *The earnings per share of Greater-Fool-Theory (GFT), a cryptocurrency exchange, are $6. The median P/E ratio in the cryptocurrency exchange sector (excluding GFT) is 80.* a. **Equity Value Estimation:** - If GFT has 20,000 shares outstanding, estimate the value of its equity. b. **P/E Ratio Impact Analysis:** - How would the P/E ratio in the cryptocurrency exchange sector change (increase, decrease, or stay the same) if the sector’s growth prospects declined (i.e., if expectations of future growth are lower)? Please explain your answer for full credit. **Guidelines for Solving:** - **Part a:** Use the given earnings per share and the P/E ratio to calculate the estimated equity value. - **Part b:** Consider the economic factors influencing the P/E ratio, such as market sentiment and growth expectations, and discuss how changes in these factors might affect the P/E ratio.
Transcribed Image Text:**Problem 11: Financial Analysis of Greater-Fool-Theory (GFT)** *The earnings per share of Greater-Fool-Theory (GFT), a cryptocurrency exchange, are $6. The median P/E ratio in the cryptocurrency exchange sector (excluding GFT) is 80.* a. **Equity Value Estimation:** - If GFT has 20,000 shares outstanding, estimate the value of its equity. b. **P/E Ratio Impact Analysis:** - How would the P/E ratio in the cryptocurrency exchange sector change (increase, decrease, or stay the same) if the sector’s growth prospects declined (i.e., if expectations of future growth are lower)? Please explain your answer for full credit. **Guidelines for Solving:** - **Part a:** Use the given earnings per share and the P/E ratio to calculate the estimated equity value. - **Part b:** Consider the economic factors influencing the P/E ratio, such as market sentiment and growth expectations, and discuss how changes in these factors might affect the P/E ratio.
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