Question

6. Market value ratios Aa Aa Ratios are mostly calculated using data drawn from 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 Cute Camel Woodcraft Company: Cute Camel Woodcraft Company just reported earnings after tax (also called net income) of $95,000,000, and a current stock price of $23.00 per share. The company is forecasting an increase of 25% for its after-tax income next year, but it also expects it will have to issue 2,800,000 new shares of stock (raising its shares outstanding from 5,500,000 to 8,300,000 If Cute Camel's forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does the company's management expect its stock price to be one year from now? (Note: Round any EPS calculations to two decimal places, and round any P/E ratio calculation to four decimal places.) O $19.06 per share O $23.00 per share O $14.30 per share O $23.83 per share One year later, Cute Camel's shares are trading at $54.56 per share, and the company reports the value of its total common equity as $31,639,600. Given this information, Cute Camel's market-to-book (M/B) ratio is Can a company's shares exhibit a negative P/E ratio? O No O Yes Which of the following statements is true about market value ratios? Companies with high research and development (R&D) expenses tend to have high P/E ratios. Companies with high research and development (R&D) expenses tend to have low P/E ratios

Answer 1

→ Book. value 31) 633, 600 Book value Share31, 639, 600 3, 300, 000 3.812 pm Shane Market Price 丰S-46 3.812 1.432 Yes Companys Shares can have negative Ple ratio Tf company has negative net in coma or s in loss thun EPS wu ba negative and hence le wru also be negative Negahve Ple Yetio implies company is it loss Company has high R&D expense , Hun its net income will decrease in Short sun and hance Ers wiu also decrease. As P/e raofice pet share EPS o i ers will decrease thun Ple rat'o otu nerase aith incresi in RLD expense