--%>

Explain undervaluation of share on the market or interpret

Suppose we calculate g as ROE (1–p)/(1–ROE (1–p)) and the Ke by the CAPM. We replace both values into the formula PER = (ROE (1+g) – g)/ROE (Ke-g) but there PER we obtain is fully different from the one we get by dividing the quotation of the share to the earnings/share. Is this possible to undervaluation of that share on the market or interpret that difference as an overvaluation?

E

Expert

Verified

The g that influences the PER is not ROE (1-p)/ [1 – ROE (1–p)], but there expected average growth of the profit /share, that is not observable.

   Related Questions in Corporate Finance

  • Q : How economic doctrine relies on

    I read in a sentence passed through the Supreme Court that, so as to value companies, economic doctrine relies upon intermediary methods among ‘Anglo-Saxon’ theoretical models and the practical models common in the United

  • Q : Tax credit for lease payments problem

    ABC Inc. is planning to lease a computer for $3000 per annum, payable in advance, for a period of 4 years. The lease will cover maintenance costs. ABC CFO feels that if he buys the same computer he should be able to sell it at 15% of the purchase price after 4 years.

  • Q : Who explain match theoretical & market

    Who demonstrated that how to match theoretical and market prices for normal bonds?

  • Q : Determining Profitable purchasing ABC

    ABC Corporation is interested in purchasing a machine which will cost $50,000, and it will depreciate it on the straight-line basis over a 5-year period. The machine is predicted to last for 7 years and then Milan will sell it for $5,000. The expected earnings before

  • Q : Who explained the high-peak/fat-tails

    Who explained the high-peak/fat-tails?

  • Q : Compute a company's cost of capital in

    How can we compute a company's cost of capital in emerging nations, particularly when there is no state bond that we could take as a reference?

  • Q : How companies accuse investors make

    Sometimes, companies accuse investors of performing credit sales which they make their quotations fall. Is it true?

  • Q : Strategy of Bull Spread State when

    State when market is expected to go up then what is the Strategy of Bull Spread?

  • Q : MIRR & IRR Projects Answer using

    Answer using Microsoft Word and your answer should be between 100 and 150 words Question1. Identify the major

  • Q : Structure of Interest rates Which

    Which determines the shape of the term structure of Interest rates?