Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Alpha Inc has earnings per share (EPS) of $0.8 and a stock price of $35. Its EPS is expected to grow at 20% a year
Alpha Inc has earnings per share (EPS) of $0.8 and a stock price of $35. Its EPS is expected to grow at 20% a year for the next 5 years, and it has a beta of 1.2. Zeta Inc has earnings per share (EPS) of $1.4 and a stock price of $50. Its EPS is expected to grow at 12% a year for the next 5 years, and it has a beta of 1.7. You have run a regression of PE/g ratios against betas, using all the companies in the market. Below is the estimated equation that defines the relation between PE/g and Beta: PE/g = 3.45 -0.60 * Beta Required: Based on the information above, select from the dropdown list to make Statement 1 and Statement 2 correct. Note: Use the percentage points of growth rate in your calculation (if the growth rate is 10%, use 10). Also round the PE ratio to 2 decimal points, i.e. X.XX Statement 1: Alpha Inc is Select alternative v relative to comparable companies' multiples in the market. Statement 2: Zeta Inc is Select alternative elative to comparable companies' multiples in the market. under-valued fairly-valued Reset over-valued Maximum marks: 6
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started