In early 1990, major Tokyo Stock Exchange issues sold for an average 60 times earnings, more than

Question:

In early 1990, major Tokyo Stock Exchange issues sold for an average 60 times earnings, more than four times the 13.8 price/earnings ratio for the S&P 500 at that time. According to Business Week (February 12, 1990, p. 76), ''Since p-e ratios are a guide to a company's capital, this valuation gap implies that raising new equity costs Japanese companies less than 2% a year, vs. an average 7% for the U.S.'' Comment on this statement.

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...