You have been asked to analyze LongLife Insurance company, a firm in stable growth, with earnings expected

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You have been asked to analyze LongLife Insurance company, a firm in stable growth, with earnings expected to grow 4% in the long term.

The firm is trading at a multiple of 1.4 times book value and has a cost of equity of 11%.

a. If the market is pricing the stock correctly, estimate the return on equity that LongLife is expected to earn in perpetuity.

b. If the regulatory authorities constrain LongLife to earn a return on equity equal to its cost of equity, what would you expect the price-tobook ratio to be?

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Investment Valuation Tools And Techniques For Determining The Value Of Any Asset

ISBN: 9781118011522

3rd Edition

Authors: Aswath Damodaran

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Question Posted: May 23, 2024 05:03 AM

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You have been asked to analyze LongLife Insurance company, a firm in stable growth, with earnings expected

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Investment Valuation Tools And Techniques For Determining The Value Of Any Asset

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