Huckleberry Finn was an analyst with Twain Investments. He was analyzing two comparable companies in the Twilight industry: Alpha Corporation and Beta Corporation. The two companies had very similar earnings growth prospects, both paid no dividends, and both had identical net income and ROE. Alpha was somewhat larger in terms of sales revenue and assets. However, Alpha had a much lower P/E ratio than Beta, which resulted in a lower market value for Alpha than Beta. Huckleberry was puzzled how two companies with identical net income, dividend payout, and growth prospects could have significantly different market valuations, and he was wondering whether Alpha presented a more attractive investment proposition compared to Beta. Abridged financial statements of Alpha and Beta Corporation are provided below ($ millions):

Please advise Huckleberry using the financial statement information provided. Please be specific in your answer and back it up with appropriate ratioanalysis.

  • CreatedJanuary 22, 2015
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