Question
1. A company has a profit margin of 13%, an asset turnover ratio of 1.6, and an equity multiplier ratio of 1.65, both the tax
1. A company has a profit margin of 13%, an asset turnover ratio of 1.6, and an equity multiplier ratio of 1.65, both the tax burden and the interest burden are at 1, if the profit margin increases to 18% but the asset turnover ratio decreases to 1.3, what will be companys new ROE?
2. ART company has come out with a new and improved product. As a result, the market projects an ROE of 25% for the company, and we know the company will maintain a plowback ratio of 0.20. The company's earnings this year is $3 per share and the current market price is $35. If firms with similar risks in the industry have a PE ratio of 20 with an estimated earnings growth rate of 12%, is ART company overvalued or undervalued based on PEG approach?
| A. | The ART company is overvalued because it has a PEG ratio that equals to 1.42 | |
| B. | The ART company is undervalued because it has a PE ratio that equals to 11.11 | |
| C. | The ART company is overvalued because it has a PE ratio that equals to 22.15 | |
| D. | The ART company is undervalued because it has a PEG ratio that equals to 1.42 | |
| E. | The ART company is overvalued because it has a PEG ratio that equals to 2.22 | |
| F. | The ART company is undervalued because it has a PEG ratio that equals to 2.22 |
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Ecological Money And Finance
Authors: Thomas Lagoarde-Segot
1st Edition
3031142314, 978-3031142314
