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hjlf
3 years ago
5

Determining PB Ratio for Companies with Different Returns Assume that the present value of expected ROPI follows a perpetuity wi

th growth g (Value = Amount/ [r - g]). Determine the theoretically correct PB ratio for each of the following companies A and B. Company Net Operating Assets Equity RNOA ROE Weighted Avg. Cost of Capital Growth Rate in ROPI A $100 $100 21% 21% 10% 2% B $100 $100 14% 14% 10% 2% Round answers to two decimal places. PB Ratio Company A Answer 10 Company B Answer 0
Business
1 answer:
-Dominant- [34]3 years ago
4 0

Answer:

Pb R atio:

For company A = 2.375

For company B = 1.5

Explanation:

As per the data given in the question,

ROPI = NDA (RNOA - WACC)

For Company A 100 × (21%-10%)

For Company B 100 × (14%-10%)

Present value of ROPI = (ROPI ÷ (1+WACC)) ÷ [1-(1+g) ÷ (1+WACC)]

For Company A = (11 ÷ (1+0.10)) ÷ [1-(1+0.02) ÷ (1+0.10)]

= $137.50

For Company B = (4 ÷ (1+0.10)) ÷ [1-(1+0.02) ÷ (1+0.10)]

= $50

Market value of equity = NOA + present value of ROPI

= $100 + 137.50 = $237.50(Company A)

= $100 + $50 = $150(Company B)

Pb Ratio = Market value of equity ÷ Book value of equity

For company A = $237.50÷100 = 2.375

For company B = $150÷100 = 1.5

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In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company
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Answer:

2) Matching

Explanation:

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3 years ago
Executives at Southwestern Construction have noticed that the company's construction team in the Phoenix office is more efficien
zimovet [89]

Answer:

The correct answer is (B)

Explanation:

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5 0
3 years ago
Mcdougald Corporation is a service company that measures its output by the number of customers served. The company has provided
ANEK [815]

Answer:

The spending variance for "Employee salaries and wages" for March would have been closest to $1,200F .

Explanation:

Customers served (q)

Employee salaries and wages ($58,400 + $1,000q)

The spending variance for "Employee salaries and wages" for March would have been closest to

         Actual Results      Flexible Budget     Revenue and Spending Variances

(q)          26                 26      

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6 0
3 years ago
Justus Motor Co.has a WACC of 11.50%, and its value of operations is $25.00 million. Justus's free cash flow is expected to grow
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Answer:

FCF_0=1.05

So option (b) is correct option

Explanation:

We have given value of operation PV = $25.00

WACC, that is Ke = 11.50% = 0.1150

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We have to find the value of FCF_0

We know that value of operation is given by

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FCF_0=1.05

So option (b) is correct option

4 0
3 years ago
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