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Define the P/E valuation method. Under what circumstances should a stock be valued using this method?
The P/E ratio specifies how much investors are willing to pay for each dollar of a stock's earnings. A high P/E ratio specifies that investors believe the stock's earnings will enhance, or that the risk of the stock is little, or both.
Financial analysts habitually use a P/E model to calculate common stock value for businesses that aren't public. First, analysts compare the P/E ratios of alike companies within an industry to determine an appropriate P/E ratio for companies in that industry. Second, analysts calculate a suitable stock price for firms in the industry by multiplying each firm's earnings per share (EPS) by the industry average P/E ratio.
Illustration Discount bond (5 yr. bond with 10% coupon) (expected rate yield at 12%) Premium bo
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If the issuer company is taken over, then the bondholders are likely to suffer. It is due to lowering of the stock prices in the market as a post takeover effect.
Suppose you have recently been contracted as a financial consultant to a London-based engineering company, Alpha Products Plc. The company uses three components as part of their pr
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CAPITALISATION RATE=0.01 EARNINGS PER SHARE(E)=10 ASSUME RATE OF RETURNS ON INVESTMENTS (R):15
How do risk-averse investors compensate for risk when they take on investment projects? Due to the risk aversion, people demand higher rates of return for taking on higher-risk p
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