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:Growth rate in earnings per shareConsistency of performanceDebt to total assetsTurnover of productQuality of management12%Initial P/E ratioRichmondIncreased earnings4 out of 5 years368slightly below averageHighCar Rental IndustryIncreased earnings3 out of 5 years40%AverageAverage™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 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? (Round your answer to 1 decimal place.)< PrevAAAAAAAAAAAAAA7 of 10Next

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: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Richmond Initial P/E ratio 128 Increased earnings 4 out of 5 years. 36% slightly below average High Car Rental Industry 10% Increased earnings 3 out of 5 years 40% Average Average 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? (Round your answer to 1 decimal place.)

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: Growth rate in earnings per share Consistency of performance Debt to total assets Turnover of product Quality of management Richmond Initial P/E ratio 128 Increased earnings 4 out of 5 years. 36% slightly below average High Car Rental Industry 10% Increased earnings 3 out of 5 years 40% Average Average 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? (Round your answer to 1 decimal place.)

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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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.…
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