Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 28, Problem 10P
If companies in the same industry as TargetCo (from Problem 9) are trading at multiples of 14 times earnings, what would be one estimate of an appropriate premium for TargetCo?
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TNS Ltd is currently trading at a forward P/D ratio of 25, a forward P/E ratio of 20, a P/B ratio of 4 and P/S ratio of 5.
a. What is its PEG ratio ( PE divided by g expressed in %)
b. What is its net profit margin equal to
c. What is its required rate of return equal to (re)
calculate the firms:
d) P/E ratio given the market price above
e) ROE,
f) Debt-equity ratio
g) Times Interest Earned Ratio, if interest and tax are 15% and 30% of sales respectively.
The Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below.
Assets
$ 38,000,000
101,000,000
$139,000,000
Current assets
Net plant, property, and equipment
Total assets
Liabilities and Equity
Accounts payable
$ 10,000,000
9,000,000
$ 19,000,000
40,000,000
$ 59,000,000
Accruals
Current liabilities
Long-term debt (40,000 bonds, S1,000 par value)
Total liabilities
Common stock (10,000,000 shares)
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
30,000,000
_50,000,000
_80,000,000
$139,000,000
The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%.
The required return on the stock market is…
Chapter 28 Solutions
Corporate Finance
Ch. 28.1 - Prob. 1CCCh. 28.1 - Prob. 2CCCh. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CCCh. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CCCh. 28.4 - Prob. 1CCCh. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CCCh. 28.5 - Prob. 2CC
Ch. 28.6 - Prob. 1CCCh. 28.6 - Prob. 2CCCh. 28 - What are the two primary mechanisms under which...Ch. 28 - Prob. 2PCh. 28 - What are some reasons why a horizontal merger...Ch. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - How do the carryforward and carryback provisions...Ch. 28 - Diversification is good for shareholders. So why...Ch. 28 - Your company has earnings per share of 4. It has 1...Ch. 28 - If companies in the same industry as TargetCo...Ch. 28 - Prob. 11PCh. 28 - Prob. 12PCh. 28 - Prob. 13PCh. 28 - Lets reconsider part (b) of Problem 99. The actual...Ch. 28 - ABC has 1 million shares outstanding, each of...Ch. 28 - Prob. 16PCh. 28 - How does a toehold help overcome the free rider...Ch. 28 - Prob. 18P
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- As a consultant to Basso Inc., you have been provided with the following data: D1 = $0.68; P0 = $28.50; and g = 7.00% (constant). What is the cost of common from retained earnings based on the DCF approach? Group of answer choices 10.14% 9.10% 9.48% 9.39% 8.64%arrow_forwardCompute Topp Company's price-earnings (PE) ratio if its common stock has a market value of $22.20 per share and its earnings per share (EPS) is $4.00. Topp's key competitor, Lower Deck, has a price-earnings (PE) ratio of 9.5. For which company does the market have higher expectations of future performance? Complete this question by entering your answers in the tabs below. Price Earnings Ratio Future Performance Compute Topp Company's price-earnings (PE) ratio if its common stock has a market value of $22.20 per share and its earnings per share (EPS) is $4.00. Choose Numerator: Price Earnings Ratio 1 Choose Denominator: 1 1 Price Earnings Ratio = Price Earnings Ratioarrow_forwardyou have been provided with the following data D1=$1.27 PO=60 and G=8 constant. What is the cost of equity from retained earnings based on the DCF approach?arrow_forward
- Compute Topp Company’s price-earnings ratio if its common stock has a market value of $20.54 per share and its EPS is $3.95. Its key competitor, Lower Deck, has a PE ratio of 9.5. For which company does the market have higher expectations of future performance?arrow_forwardAssume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $1.70; P0 = $49.50; and g = 6.00% (constant). What is the cost of equity from retained earnings based on the DCF approach?arrow_forwardThe price-earnings per share of A, B, C, D and E is P6.00, P6.25, P6.80, P6.90 and P6.20. If A has earnings per share of P1,200.00, it would currently be ____ by ____ compared to the group average. a. Overvalued by P516 b. Undervalued by P540 c. Undervalued by P516 d. Overvalued by P550arrow_forward
- go.3arrow_forwardAdd a comment for this solution in table.arrow_forwarda. Given the following information, calculate the expected value for Firm C’s EPS. Datafor Firms A and B are as follows: E(EPSA) =$5.10, σA =$3.61, E(EPSB) =$4.20, and σB = $2.96. b. You are given that σC = $4.11. Discuss the relative riskiness of the three firms’ earnings.arrow_forward
- If the annual geometric mean for the equity risk premium is 8.4 percent, what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?arrow_forwardRed Company's book value per share is P25, the market to book value ratio is 1.5. If the earnings per share is P12.50, what is the P/E ratio? (Whole number)arrow_forwardConsider a company that pays out all its earnings (i.e., the payout ratio = 1 or plowback/retention ratio=0). The required return for the firm is 13%. Compute the intrinsic P/E if its ROE is 15%. Compute the intrinsic P/E if its ROE is 20%. Discuss why your answers to parts (a) and (b) differ or do not differ from one another. Suppose that the company’s ROE is 13%. Compute its intrinsic P/E value. Would the answer to part (d) change if the company retained half of its earnings instead of paying all of them out? Discuss why or why not.arrow_forward
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