Reference no: EM133017094
Question - The following information relates to Berkeley, Inc. Industry average
Price/Share $120
Earnings/Share $4.00
Book Value/Share $24
Berkeley, Inc.
Price/Share $150
Earnings/Share $5.00
Book Value/Share $30
Berkeley has a 15% ROE and pays out 20% of its income as dividends.
Compute the price-earnings (P-E) multiple for this industry.
Compute Berkeley's estimated share price based on the P-E multiple for its industry.
Compute the price-book value (P-BV) multiple for this industry.
Compute Berkeley's estimated share price based on the P-BV multiple for its industry.
Based on this analysis, would you recommend that investors buy, hold, or sell shares of Berkeley's stock? Explain why you would make that recommendation.
Discuss the advantages and disadvantages of using P-E multiples to estimate a firm's share price.
Discuss the advantages and disadvantages of using P-BV multiples to estimate a firm's share price.
Compute Berkeley's sustainable growth rate (SGR).
What does the sustainable growth rate that you computed tell you about Berkeley?
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