Problem 15-15 (Algo) P/E ratio for new public issue [LO15-2]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 20 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 30. The firm can be compared to the car rental industry as follows:Car Rental Industry10%Growth rate in earnings per shareConsistency of performanceDebt to total assetsTurnover of productRichmond12%Increased earnings 4 out of 5 yearsIncreased earnings 3 out of 5 years32%Slightly above averageHigh40%AverageQuality of managementAverageAssume, 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 theindustry 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.Initial P/E ratio

The price-earnings ratio is the ratio of the stock price and the earnings per share of the company.…

Answered: Problem 15-15 (Algo) P/E ratio for new…

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter17: Multinational Financial Management

Section: Chapter Questions

Problem 4DQ

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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.…
Check my work Problem 5-16 Value-Weighted Indexes (LO4, CFA2) The following three defense stocks are to be combined into a stock index in January 2022 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500. Douglas McDonnell Dynamics General International Rockwell Shares (millions) 1/1/22 Price 1/1/23 1/1/24 535 450 230 $ 89 70 99 $ 94 65 88 $ 109 79 105 a. Calculate the initial value of the index if a value-weighting scheme is used. Note: Round your answer to 2 decimal places. Index value b. What is the rate of return on this index for the year ending December 31, 2022? For the year ending December 31, 2023? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. 2022 return…
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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 10 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 20. The firm can be compared to the car rental industry as follows: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management 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. Answer is complete but not entirely correct.…
470 -37 Assume that the dividend payout ratio will be 55 % when the rate on long term government bonds falls to 9%. Since investors are becoming more risk averse, the equity risk premium will rise to 8% and investors will require a 7% return. The return on equity will be 13%. What is your expectation of the market P/E ration? a. 37.69 b. 24.92 c. 58.15 d. 55.02 e. 47.82
Problem 5-16 Value-Weighted Indexes (LO4, CFA2) The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500. Douglas McDonnell Dynamics General International Rockwell Index value Shares (millions) 210 450 350 2019 return 2020 return 1/1/19 $94 36 65 % % Price a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.) 1/1/20 $ 97 31 54 1/1/21 $111 45 68 b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
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Investment Selection | L04] Given that Hertz was down by 88 percent in the first half of 2020, why did some investors hold the stock? Why didn't they sell out before the price declined so sharply? Show work on excel
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