Reference no: EM133046293
Problem - Analyze investment, cash flow and expanded analysis - In July 2010, financial analysts regressed the price to book ratios against the fundamentals identified in the preceding section-the return to equity, the payout ratio, the beta, and the expected earnings growth rate over the next five years (from analyst forecasts).
PBV = 1.09 + 8.93 ROE + .809 Payout ratio + .917 Beta + 7.55 expected growth rate
The regression has an R-squared of 43.2%
Assume that you had been asked to value a private firm early in 2011 and that you had the following data on company:
Book value of equity $100 million
Net income in 2010 20 million
Dividend paid 8 million
Beta based on comparable firms 1.25
Assume also that the firm reinvested $ 12 million in 2010 and earnings are expected to grow 25% a year to the next five years.
Required -
a) Calculate the independent variables in the desired unit.
b) Compute the predicted price-book ratios and market value of firm.
c) Interpret the R- squared of this regression.