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Assume that abnormal earnings are earned for perpetuity with growth g. Determine the theoretically correct PB ratio for each of the following companies A and
Assume that abnormal earnings are earned for perpetuity with growth g. Determine the theoretically correct PB ratio for each of the following companies A and B
Firm | NOA | BVE | ROE | Cost of Equity | g |
A | 100 | 100 | 18% | 15% | 2% |
B | 100 | 100 | 11% | 10% | 4% |
NOA is Net Operating assets and BVE is book value of equity
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