Reference no: EM132466416
1. Based on the EPS of the 3 companies above and the P/E ratio of General Motors, please estimate the share value of General Motors, Ford and Chrysler on Jan 24 2017.
General Motors Share value = $37.0 Just multiply the EPS with P/E ratio of 4.22
As P/E Ratios or not given for all companies, it is assumed to be industry P/E ratio
Ford Share value = $8.9 Hence same 4.22 used for all companies
Chrysler Share value = $4.7
2. On Jan 24 2017, General Motors shares were trading at $37.0, Ford shares at $12.6 and Chrysler at $10.9 on the New York Stock Exchange.
How do these numbers compare with the ones computed above? Why?
Value of General Motors is in par with market value. But Ford and chysler shares are tranding at a value more than their intrinsic value based on P/E ratio.
Question:
Which of the statements below could explain the difference between the share value estimate and the actual share price of Chrysler?
Group of answer choices
General Motors and Chrysler are not fully comparable firms.
Chrysler has a better EBIT/Sales ratio than General Motors.
The forward P/E ratio of Chrysler is higher than its trailing P/E ratio.
Chrysler issued additional shares in 2016.