Reference no: EM133167246
Question - Reverse Engineering with the PB Ratio - Assume the following table provides summary data for Family Dollar, Inc. (in millions). Analysts will often use the observed PB ratio to infer market expectations regarding a company's future performance under various assumptions. (Round your answers to one decimal place.)
Market value of equity $56,000
Book value of equity $28,000
ROE (based on trailing 4 quarters) 12%
EPS Growth (based on trailing 4 quarters) 13%
(a) Assume that the market's expectations of future ROE and the discount rate are 12% and 9%, respectively. Solve for the implied growth rate. Do not round until your final answer.
(b) Assume that the market's expectations of future ROE and the growth rate are 12% and 4%, respectively. Solve for the implied discount rate. Do not round until your final answer.
(c) Assume that the market's expectations of the discount rate and the growth rate are 9% and 4%, respectively. Solve for the implied future ROE. Do not round until your final answer.
(d) Do the market expectations implied from the results of parts (a) through (c) seem reasonable?