Question #75
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 27
Status: Unattempted
Question
A firm's return on equity (ROE) is 14%, its required rate of return is 10%, and its expected growth rate is 8%. What is the firm's justified price-to-book value (P/
Answer Choices:
A. 3.00
B. 2.00
C. 2.75
Explanation
The firm's justified price-to-book value = (ROE – g) / (r – g) = (0.14 – 0.08) / (0.10 – 0.08) =
3.00