For cyclical companies, why might the current P/E ratio be misleading?
Answer to relevant QuestionsUsing Formula 7–1 on page 165, compute RF (risk-free rate). The real rate of return is 3 percent and the expected rate of inflation is 5 percent. Mr. Phillips of Southwest Investment Bankers is evaluating the P/E ratio of Madison Electronics Conveyors (MEC). The firm’s P/E is currently 17. With earning per share of $2, the stock price is $34. The average P/E ratio ...The Bolten Corporation had earnings per share of $2.60 in 2012, and book value per share at the end of 2011 (beginning of 2012) was $13. a. What was the firm’s return on equity (book value) in 2012? b. If the firm pays out ...Why will the fixed-charge-coverage ratio always be equal to or less than times interest earned? Assume in part d of problem 10 that the firm had a sinking fund payment obligation of $200. How much before-tax income is required to cover the sinking-fund obligation? Would lower tax rates increase or decrease the ...
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