Relative Valuation Data for Industrial Equipment Manufacturers
Company		Price	EPS	PE Ratio	PEG Ratio	5 Year Historical Annual Growth	5 Year Expected Annual Growth	Beta	Debt Ratio	Payout Ratio
ABC		12.75	0.80			11.0%	8.0%	1.24	.10	0%
GHI		16.14	4.04			6.5%	3.5%	0.80	.34	45%
XMPH		97.00	4.40			15.5%	16%	1.34	.15	0%
DEF		52.45	2.71			7.0%	9.0%	1.05	.20	0%
ING		78.55	3.74			18.5%	14.0%	1.50	.08	0%
DDF		34.38	2.50			8.0%	6%	1.05	.40	35%
MNO		27.84	1.16			10.5%	12.0%	1.10	.12	0%

1. You work for an Investment Bank and have been asked to value KKT for a customer who is considering acquiring the firm. KKT is a young Industrial Equipment Manufacturer. It has earnings per share (EPS) of .45, and its expected growth rate in EPS for the next 5 years is 18% per year. You estimate its beta to be 1.25. XBC is not expected to pay dividends in the foreseeable future. Using this information and the information presented below complete the relative valuation of KKT. Include values based on the industry PE Ratio, based on single factor adjustment, and based on any subjective adjustment. At what price would you say the firm is fairly valued? Explain your analysis, including any choices and assumptions you made.
2. Dog Company stock sells for $20 per share and has earnings per share of $2. Puppy Company has earnings per share of $.25 and sells for $10 per share. On a relative basis, which company is cheaper? Why might someone prefer the stock that is relatively more expensive? Explain your answers.