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Calculating PBV, P/E and growth duration.

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1. Calculate the PBV of a constant growth company given the following information:
Net income = $285.385 (millions)
Book value of equity = $1,902.378 (millions)
Payout ratio = 40%
Expected growth rate = 6%
Beta = 1.2
Risk-free rate = 6%
Market risk premium = 4%

2. Calculate the P/E multiple of a firm given the following information:
Expected ROE = 12.5%
Expected retention ratio = 0.60
Stock price = $32.75
Beta = 1.2
Risk-free rate = 6%
Market risk premium = 4%

3. Calculate the growth duration of a Stock B given the following data:

P/E multiplier: Index = 22; Stock B = 34
Expected growth rate: Index = 0.04; Stock B = 0.12
Dividend yield: Index = 0.0235; Stock B = 0.0123

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Answer:
1) Given that,
Net Income = $285.385 (million)
Book value of equity = $1,902.378 (millions)
Payout ratio = ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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