1. GenieSoft is a computer software manufacturer with earnings per share of $ 0.50 and a stock price of $ 25. The stock is expected to grow at 40% a year for the next 5 years, and has a beta of 2.0. AutoPred is a automobile part manufacturer, with earnings per share of $ 1.50 and a stock price of $ 30. The stock is expected to grow 10% a year for the next 5 years, and has a beta of 1.0. You have run a regression of PE/g ratios against betas, using all the companies in the market: PE/g=2.75 -0.50 (Beta) Based upon this regression, which of the following statements about these companies would you agree with? (2 points) a. GenieSoft is overvalued, while AutoPred is undervalued. b. AutoPred is overvalued, while GenieSoft is undervalued. c. Both companies are undervalued. d. Both companies are undervalued relative to the market. e. Both companies are overvalued. d. Both companies are overvalued relative to the market. 2. Time Warner is considering a sale of its publishing division. The division had earnings before interest, taxes and depreciation of $ 550 million in the most recent year (depreciation was $ 150 million), growing at an estimated 5% a year (You can assume that depreciation grows at the same rate). The return on capital in the division is 15%, and the corporate tax rate is 40%. If the cost of capital for the division is 9%, estimate the following: a. the value/FCFF multiple based upon fundamentals b. the value/EBIT multiple based upond fundamentals c. the value/EBITDA multiple based upon fundamentals

1. GenieSoft is a computer software manufacturer with earnings per share of $0.50 and a stock price of $25. The stock is expected to grow at 40% a year for the next 5 years, and has a beta of 2.0. AutoPred is a automobile part manufacturer, with earnings per share of $ 1.50 and a stock price of $30. The stock is expected to grow 10% a year for the next 5 years, and has a beta of 1.0. You have run a regression of PE/g ratios against betas, using all the companies in the market: PE/g=2.750.50(Beta) Based upon this regression, which of the following statements about these companies would you agree with? ( 2 points) a. GenieSoft is overvalued, while AutoPred is undervalued. b. AutoPred is overvalued, while GenieSoft is undervalued. c. Both companies are undervalued. d. Both companies are undervalued relative to the market. e. Both companies are overvalued. d. Both companies are overvalued relative to the market. 2. Time Warner is considering a sale of its publishing division. The division had earnings before interest, taxes and depreciation of $550 million in the most recent year (depreciation was $150 million), growing at an estimated 5% a year (You can assume that depreciation grows at the same rate). The return on capital in the division is 15%, and the corporate tax rate is 40%. If the cost of capital for the division is 9%, estimate the following: a. the value/FCFF multiple based upon fundamentals b. the value/EBIT multiple based upond fundamentals c. the value/EBITDA multiple based upon fundamentals