Question
Two companies A and B are in the same line of business. Company A is based in Germany, where inflation during the past few years
Two companies A and B are in the same line of business. Company A is based in Germany, where inflation during the past few years have average about 2.5%. Company B is based in South Africa, where the inflation rate during the past few years has averaged about 5%. They have the same real rate of return of 6% per year. Both have zero real growth in earnings, and can pass only 40% of inflation through their earnings.
a) Calculate the P/E ratio of each company.
Two companies A and B are in the same line of business. Company A is based in Germany, where inflation during the past few years have average about 2.5%. Company B is based in South Africa, where the inflation rate during the past few years has averaged about 5%. They have the same real rate of return of 6% per year. Both have zero real growth in earnings, and can pass only 40% of inflation through their earnings.
a) Calculate the P/E ratio of each company.
b) What can you say based on a comparison of the P/E for the two companies?
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Intermediate Financial Management
Authors: Eugene F Brigham, Phillip R Daves
9th Edition
032431986X, 9780324319866
