Solving problems on market efficiency

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Reference no: EM1373111

Four firms are in fast increasing sectors. Each has a constant price to earnings ratio (P/E). Each firm is about to publicize new products that could boost companies earning per share. In one case a firm will make known that FDA has rejected a proposed new drug. In each case, analysts will be able to immediately project the change in firms EPS (abbr. Inc. in EPS). Suppose that the P/E remains steady. Information for these firms's includes the increase in EPS is shown below.

Firm Price P/E Cur EPS Inc. in EPS
Tata $72.00 $12.00 $6.00 $0.50
Bare $104.40 $8.70 $12.00 $0.87
Kita $112.00 $14.00 $8.00 $2.00
Plond $52.50 $15.00 $3.50 -$1.00

What should happen to the value in an efficient market and how soon? Are investors that pay price after adjustment paying a fair price and are they expected to receive a normal return? Please show all calculations in Excel.

Reference no: EM1373111

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