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Determining PB Ratio for Companies with Different Capitalization Assume that the present value of expected ROPI follows a perpetuity with growth g (Value = Amount/
Determining PB Ratio for Companies with Different Capitalization
Assume that the present value of expected ROPI follows a perpetuity with growth g (Value = Amount/ [r - g]). Determine the theoretically correct PB ratio for each of the following companies A and B.
|
Company | Net Operating Assets |
Debt (6% Rate) |
Equity |
RNOA |
ROE | Weighted Avg. Cost of Capital |
Growth Rate in ROPI |
|---|---|---|---|---|---|---|---|
| A | $100 | $0 | $100 | 11% | 11.0% | 10% | 0% |
| B | $100 | $60 | $40 | 11% | 18.5% | 10% | 0% |
Round answers to two decimal places.
| PB Ratio | |
|---|---|
| Company A | Answer |
| Company B | Answer |
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