Market value ratios

Assignment Help Financial Management
Reference no: EM131011704

Market value ratios

Ratios are mostly calculated based on the financial statements of a firm. However, another group of ratios, called market-based ratios, relate to a firm’s observable market value, stock prices, and book values, integrating information from both the market and the firm’s financial statements.

Consider the case of Taggart Goods Corp.:

Taggart Goods Corp. just reported a net income of \$5,000,000, and its current stock price is \$23.00 per share. Taggart is forecasting an increase of 25% for its net income next year, but it also expects it will have to issue 1,700,000 new shares of stock (raising its shares outstanding from 5,500,000 shares to 7,200,000 shares).

If Taggart’s forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does management expect its stock price to be one year from now? (Hint: If you choose to compute the firm’s price/earnings ratio, round its value to four decimal places.)

(a)\$21.99 per share

(b)\$23.00 per share

(c)\$16.49 per share

(d)\$27.49 per share

One year later, Taggart Goods Corp.’s stock is trading at \$43.75, and the company reports its common equity value as \$31,665,600. What is Taggart Goods Corp.’s market-to-book(M/B) ratio? (1.05x or 9.94x or 14.91x 0r 23.87x)...........................

Is it possible for a company to have a negative EPS and thus a negative P/E ratio? (yes or no)...............

Which of the following statements is true about market value ratios?

(a) Companies with high research and development (R&D) expenses tend to have low P/E ratios.

(b) Companies with high research and development (R&D) expenses tend to have high P/E ratios

Questions Cloud

 Description of the case and what occurred in detail : A description of the case and what occurred in detail, An examination of the case in depth that utilizes the seven-step approach to the intelligence cycle. Each step within this process should be a heading in your paper, with the Feedback section i.. Compute the volume of the solid obtained by rotating ellipse : Find the volume of the solid obtained by rotating the ellipse around the x-axis and also around the y-axis. These solids are called ellipsoids; one is vaguely rugby-ball shaped. Losses of british aircraft in world war ii : Serving in a bomber crew in World War II was dangerous. The British estimated that the probability of an aircraft loss due to enemy action was 1/20 for each mission. What are the benefits and drawbacks of accumulating cash : What are the benefits and drawbacks of accumulating cash balances rather than paying dividends and what effects do dividend policy have on this type of decision? Market value ratios : Ratios are mostly calculated based on the financial statements of a firm. Taggart Goods Corp. just reported a net income of \$5,000,000, and its current stock price is \$23.00 per share. Taggart is forecasting an increase of 25% for its net income next.. Develop a new growth ring of an oak tree : How many vessels of radius 90 m would have to develop in a new growth ring of an oak tree to have an equal rate of total xylem ow as in the maple? International business law paper : International Business Law Paper- Choose a legal issue or topic of particular interest to YOU from the news (i.e. TheNew York Times, The Wall Street Journal, Bloomberg Business Week.) The Issue or event should involve INTERNATIONAL BUSINESSAND LA.. Why is the difference so large : Assume you can earn 8.2% per year on your investments. if you invest \$180,000 for retirement at age 30, how much will you have 35 years later for retirement? Why is the difference so large? The owner of a manufacturing plant borrows : The owner of a manufacturing plant borrows \$200,000 to buy new robotic equipment for the plant. The loan is to be repaid over 16 years in equal quarterly payments at 4% annual interest with no payments for the first year (interest does accrue the fir..

Write a Review

Described as indirect finance

Which of the following cannot be described as indirect finance? A bond denominated in a \$5000 coupon bond with a coupon rate of 5% has a coupon payment of ___

Is the call in the money-speculative premium on call option

Assume that a stock is selling for \$47 with options available at 20, 30, and 40 strike prices. The 40 call option is at 7.5. Calculate the following: (a) The intrinsic value of the \$40 call (b) Is the call in the money? (c) The speculative premium on..

Describe how acquisition affects number balance sheet

The book value of Little Statistic’s total assets is \$400,000. Suppose Number Crunching Inc. acquires Little Statistic’s assets for \$1 million and finances the purchase by selling \$600,000 in new stock, \$300,000 in new debt, and reducing cash by \$100..

What is the effective annual cost to your firm

Your firm purchases goods from its supplier on terms of 1.1 / 10, net 30. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 30? What is the effective annual cost to your firm if it choo..

The expected EBIT after the new financing

Dundee Company has a total value of \$74 million. Its stock sells at \$32 a share. At present, it has a loan of \$10 million at 8% interest. It needs \$3 million in additional capital. The expected EBIT after the new financing is \$6 million, with a stand..

Find the traders profit and loss

Consider a trader who takes a long position in a six-month forward contract on the euro. The forward rate is \$1.75 = €1.00; the contract size is €62,500. At the maturity of the contract the spot exchange rate is \$1.65 = €1.00. Find the trader's profi..

Discussing job order costing systems

Let's begin by discussing when job order costing systems would be more effective than a process costing system. Please give examples of types of businesses where each would be appropriate. Do these costing systems apply only to manufacturing?

Purchase a new set of bucket seats for his van

Jimmy wants to purchase a new set of bucket seats for his van. He has bad credit, so he finds a place that will sell him the seats via an add-on loan. The seats cost \$900 total. Jimmy in willing to pay up to \$90 per month for one year for these seats..

Current market price per share

HOTROD Ltd has a current market price per share of 1 100 cents per share. HOTROD’s previous annual financial report reported a dividend of 150 cents per share. What is HOTROD’s trailing Price/Earnings multiple at the end of the current financial year..

Forecast broussards additional funds needed for coming year

Broussard Skateboard’s sales are expected to increase by 15% from \$8 million in 2013 to \$9.2 million in 2014. Its assets totaled \$5 million at the end of 2013. Broussard is already at full capacity, so its assets most grow at the same rate as project..

How much will earnings grow over the year

A firm is financing its growth with retained earnings. It is retaining 80 percent of its annual earnings. The firm's historic return on equity is 16 percent, a figure that is expected to continue into the future. How much will earnings grow over the ..

True regarding estate taxes

Which of the following is not true regarding estate taxes?