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Price earnings ratio for Glamour plc.

The company Glamour plc. has undertaken an investment of £1,000,000 from which it expects earnings of £50,000 next year, growing at 10% annually. Moreover, the company depreciates 5% of its capital each year and requires total capital expenditure (replacement expenditure and net new investment) of 8%. Company Value has the same investment outlay, depreciation and capital expenditure, but earnings growth of 5% and expected first period earnings of £100,000. Moreover, both companies have the same cost of capital of 15%.

Calculate the price earnings ratio for each company.

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Price earnings ratio is found.

$2.19