Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134475561
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
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Chapter 2, Problem 14CC
Summary Introduction
Price − Earnings (P/E) Ratio:
The Price − Earnings (P/E) Ratio is used to find out the market value of a firm. It helps to find out whether the stock is over-valued or under-valued considering the idea that the stock value should be proportionate to the earnings it generates for the shareholders of the firm. The firms that have high growth rate will have a higher price − earnings ratio as compared to those firms that grow at lower pace. It can be calculated either by dividing the market value of equity to earnings or by dividing the price of the shares to the earning per share of the firm. It can be demonstrated as under:
Book Value
The book value of an asset refers to that value at which the asset is posted in the company’s financial statement, the
Market Value
The market keeps on changing every time. Market value refers to the value of the asset at which it is valued in the market at a particular time. The market value is also referred to as the market capitalization of those companies that are traded publically. It can be calculated as under:
To Identify:
The method to use the Price − Earnings (P/E) ratio to gauge the market value of a firm.
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Chapter 2 Solutions
Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Ch. 2 - Prob. 1CCCh. 2 - Prob. 2CCCh. 2 - What 's depreciation designed to capture?Ch. 2 - Prob. 4CCCh. 2 -
5. what do a firm’s earning measure?
Ch. 2 - 6. What is dilution?
Ch. 2 - Prob. 7CCCh. 2 - Prob. 8CCCh. 2 - Prob. 9CCCh. 2 - What information do the notes to financial...
Ch. 2 - Prob. 11CCCh. 2 - Prob. 12CCCh. 2 - Prob. 13CCCh. 2 - Prob. 14CCCh. 2 - Prob. 15CCCh. 2 - Prob. 16CCCh. 2 - Prob. 1CTCh. 2 - Prob. 2CTCh. 2 - Prob. 3CTCh. 2 - 4. What is the purpose of the income statement?
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