2. a. What are the determinants of Price/Earnings ratio? (10 marks) b. What are the potential issues with using the P/E multiple for relative valuation? (6 marks) c. Conglomerate Inc is a company in two different businesses. In the most recent year, the firm reported the following breakdown of key operating items (in millions): Sales EBIT Growth rate (9) Technology 1,000 400 Hotels 2,000 200 4% 15% The company has 200 million shares outstanding, and faces a tax rate of 25%. It has a cash balance of $300 million and Debt of $1 billion. Regressions for the two sectors show: Technology: Enterprise value/Sales = 1.3 +0.5*(EBIT/Sales) + 12.0*g Hotels: Enterprise value/EBIT = 3.3 + 42.5*(EBIT/Sales) + 30.0*g (All percentages are entered as decimals in the regression. Thus, 15% would be 0.15) i. Estimate the value of equity per share in Conglomerate Inc. (5 marks) ii. Conglomerate Inc is trading at $24/share. Other things remaining unchanged, what growth rate for Technology business will justify the price? (4 marks)