Question: At the end of 2012 Tootsie Roll had a price
At the end of 2012, Tootsie Roll had a price- earnings ratio of 30.7, and Hershey had a price- earnings ratio of 25.3. These convert to capitalization rates of 3.25% for Tootsie Roll and 3.95% for Hershey. Given that the 30- year bond rate at the end of 2012 was about 3.0%, how might you explain the difference between the capitalization rates of these two companies in terms of the buildup criteria set forth in the chapter?
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