In the year 2016, Al-Jazeerah and Company's shares traded at $ 30 per share; this is a 25% the decline from its peak. Forecasted earning per share for 2016 & 2017 were $3.05 & $3.2 . A dividend of $ 0.5 per share was indicated for the fiscal year 2017. (a) Calculate AAA's normal forward P/E and the forward P/E it traded in 2016. Use a required rate of return of 10%. (b) Calculate the intrinsic P/E implied by the analyst' forecasts with the assumption that there will be no abnormal earning growth after 2018. (c) Explain why an analyst prefers a leading P/E ratio over a trailing P/E ratio? (d) Explain why a normal forward P/E ratio and a normal trailing P/E ratio always differ by 1. (e) Explain why Interest payment should not be part of cash flow from operations. (f) Explain why might a firm trade at a price to book ratio greater than 1

In the year 2016, Al-Jazeerah and Company's shares traded at $ 30 per share; this is a 25% the decline from its peak. Forecasted earning per share for 2016 & 2017 were $3.05 & $3.2 . A dividend of $ 0.5 per share was indicated for the fiscal year 2017. (a) Calculate AAA's normal forward P/E and the forward P/E it traded in 2016. Use a required rate of return of 10%. (b) Calculate the intrinsic P/E implied by the analyst' forecasts with the assumption that there will be no abnormal earning growth after 2018. (c) Explain why an analyst prefers a leading P/E ratio over a trailing P/E ratio? (d) Explain why a normal forward P/E ratio and a normal trailing P/E ratio always differ by 1. (e) Explain why Interest payment should not be part of cash flow from operations. (f) Explain why might a firm trade at a price to book ratio greater than 1

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter10: Valuing Early-stage Ventures

Section: Chapter Questions

Problem 1eM

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