Question
Determining PB Ratio for Companies with Different Returns Assume that the present value of expected ROPI follows a perpetuity with growth g (Value = Amount/
Determining PB Ratio for Companies with Different Returns
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. Note: NOPAT = NOA RNOA.
| Company | Net Operating Assets | Equity | RNOA | ROE | Weighted Avg. Cost of Capital | Growth Rate in ROPI |
|---|---|---|---|---|---|---|
| A | $100 | $100 | 18% | 18% | 10% | 2% |
| B | $100 | $100 | 11% | 11% | 10% | 2% |
Round answers to two decimal places.
| PB Ratio | |
|---|---|
| Company A |
|
| Company B |
|
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F For Quantitative Finance
Authors: Johan Astborg
1st Edition
1782164626, 978-1782164623
