--%>
Assignment Help - homework help

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 : Who published a book regarding

    Who published a book regarding option formula and risk neutrality?

    		•
  • Q : Calculate the risk-free rate You have

    You have been given the following information on two corporations; you are to assume that thesecurities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145;Your Corp, Inc. has a Beta of .75 and an Expected Return of .095. Based on the

    		•
  • Q : Strategy of Bull Spread State when

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

    		•
  • Q : Explain company creates value for its

    Is this true that a company creates value for its shareholders in a year when this distributes dividends or when the quotation of the shares increases?

    		•
  • Q : Explain the Monte Carlo evaluation of

    Explain the Monte Carlo evaluation of integrals.

    		•
  • Q : Define Project Financing Project

    Project Financing: It is the procedure of determining how to go around obtaining the resources needed in managing the costs related with the launch and continuing operation of a project. Whereas this procedure sometimes comprises the re-allocation of

    		•
  • Q : Explain investment of bank for

    When my company is not listed, therefore the investment banks apply an illiquidity premium. In fact, they say this is an illiquidity premium but then they call this a small cap premium. Only one of the banks, apparently based upon Tit

    		•
  • Q : Discretion can distort results Discuss

    Discuss how management’s discretion in applying accounting rules can mislead investors. Provide three examples and how the discretion can distort results?

    		•
  • Q : Commercial bank problems For an

    For an enhanced understanding of banking industry, it is significant to look at the atmosphere in which commercial banks operate. Production growth and globalization are two main forces reshaping the banking industry nowadays. The following two questions are associate

    		•
  • Q : Benefits of working capital requirement

    Benefits of working capital requirement estimation: • Helps to judge the efficiency of utilization of working capital in generation of sales • Cost of capital aspect

    		•