Suppose we consider a firm with positive net present value of growth opportunities. We saw that the
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Suppose we consider a firm with positive net present value of growth opportunities. We saw that the price of the stock could be expressed as follows:
P = EPS/i +NPVGO
If we divide each side of the equation by the firm’s earnings per share, we arrive at a P/E ratio for which we could use to compare firms which have similar P/E multiples. However, this begs the question of just how comparable these firms are to each other. Explain how each of those determinants plays a part across supposedly similar firms.
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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