Question #77
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: 28
Status: Unattempted
Question
An analyst is valuing a company with a dividend payout ratio of 0.65, a beta of 0.72, and an expected earnings growth rate of 0.05. A regression on comparable companies produces the following equation: Predicted price to earnings (P/E) = 7.65 + (3.75 × dividend payout) + (15.35 × growth) − (0.70 × beta) What is the predicted P/E using the above regression?
Answer Choices:
A. 7.65
B. 10.35
C. 11.39
Explanation
Predicted P/E = 7.65 + (3.75 × 0.65) + (15.35 × 0.05) − (0.70 × 0.72) = 10.35