In addition to the discounted dividend model approach, Mulroney decided to look at the price- earnings ratio

Question:

In addition to the discounted dividend model approach, Mulroney decided to look at the price- earnings ratio and price-book ratio, relative to the S&P 500, for both Eastover and Southampton. Mulroney elected to perform this analysis using 2010-2014 and current data.

a. Using the data in Tables 19E and 19F, compute both the current and the 5-year (2010-2014) average relative price-earnings ratios and relative price-book ratios for Eastover and Southampton (i.e., ratios relative to those for the S&P 500). Discuss each company's current relative price-earnings ratio compared to its 5-year average relative price-earnings ratio and each company's current relative price-book ratio as compared to its 5-year average relative price-book ratio.

b. Briefly discuss one disadvantage for each of the relative price-earnings and relative price- book approaches to valuation.

Table 19E

In addition to the discounted dividend model approach, Mulroney decided

Table F

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...