Question
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
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 |
Please Explain.
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The Charles Schwab Guide To Finances After Fifty
Authors: Carrie Schwab-Pomerantz, Joanne Cuthbertson
1st Edition
0804137366, 978-0804137362
