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In 1999, the P/E ratio of Cisco was 171.47 since the market value equity was 435542 and the earning was 2540.. Now assume that the
In 1999, the P/E ratio of Cisco was 171.47 since the market value equity was 435542 and the earning was 2540.. Now assume that the P/E ratio was 50 in 1999 instead of 171.47. Then, the market value equity was supposed to be 50*2540= 127000 in 1999 instead of 435542. Caution that the P/E ratio for year 2009 is still 30. Re-estimate the real risk-adjusted long-term expected return for Cisco with the newly assumed P/E ratio. 0.3 growth rate
how is the change in P/E ratio in 1999 expected to cause the change in return on Cisco systems? why?
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