MCQ F9

This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.

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May 27, 2015 at 7:02 pm #249664
Salauddin
Member
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Dear John,

Earning yield is 12.5%. the average PE for similar company is 9.5.

Ans: The share in the company is under-valued is the true statement.

How do we arrive? Can you please show me the arithmetic?

Thanks,
Salauddin
May 28, 2015 at 8:17 am #249740
John Moffat
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PE ratio = 1/(earnings yield) = 1/0.125 = 8 (for this company).

Since the MV value of this company is only 8 times the earnings, whereas for similar companies it is higher at 9.5 time the earnings, it suggests that this company is under-valued.
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