INVESTMENTS-CONNECT PLUS ACCESS
INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 18, Problem 11CP
Summary Introduction

To calculate: it is to be determined that firm is undervalued or overvalued on P/E-to growth basis, assuming that the risks are similar in both the industries.

Introduction: PEG (Price/earnings to growth) ratio is a stock valuation. The value of the ratio represents the accurate correlation between company’s market value and the projected earning growth.

The PEG ratio is calculated by the ratio of the price/earnings to growth. It can be given as −

  PEGratio= PriceToEarningRatioGrowthRate 

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For the companies Lockheed-Martin (LMT) & Northrop-Grumman (NOC) Use Macrotrends data to calculate Return on Sales, Return on Assets, Debt Ratio, Inventory Turnover, Lead Time for each company Use Fintel to determine EPS forecasts for 2024-2027 for each company, and use those to calculate an average earnings growth rate for each - https://fintel.io/sfo/us/Imt https://fintel.io/sfo/us/noc Assuming MARR = WACC + 3%, calculate a fair market price for the stock of each company, assuming that earnings grow at the calculated rate for the next 50 years, with the following WACC LMT: NOC: 8.00% 8.25% Find the current stock price for each company Based on the above calculations, which company's stock would you buy, and provide your reasoning (If neither or both, explain reasoning)
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