PLEASE DO NOT USE ANY DATA THAT HAS ALREADY BEEN SUBMITTED FOR THIS QUESTION PREVIOUSLY. ONLY NEW & ORIGINAL WORK. THANK YOU!

14.20 Market Multiples and Reverse Engineering Share Prices. In 2000, Enron enjoyed remarkable success in the capital markets. During that year, Enron's shares increased in value by 89%, while the S\&P 500 index fell by 9%. At the end of 2000 , Enron's shares were trading at roughly $83 per share, and all of the sell-side analysts following Enron recommended the shares as a "buy" or a "strong buy." With 752.2 million shares outstanding, Enron had a market capitalization of $62,530 million and was one of the largest firms (in terms of market capital) in the United States. At year-end 2000, Enron's book value of common shareholders' equity was $11,470 million. At year-end 2000, Enron posted earnings per share of $1.19. Among sell-side analysts following Enron, the consensus forecast for earnings per share was $1.31 per share for 2001 and $1.44 per share for 2002, with 10% earnings growth expected from 2003 to 2005 . At the time, Enron was paying dividends equivalent to roughly 40% of earnings and was expected to maintain that payout policy. At year-end 2000, Enron had a market beta of 1.7. The risk-free rate of return was 4.3%, and the market risk premium was 5.0\%. (Note: The data provided in this problem, and the inferences you draw from them, do not depend on foresight of Enron's declaring bankruptcy by the end of 2001.) a. Use the CAPM to compute the required rate of return on common equity capital for Enron. b. Use year-end 2000 data to compute the following ratios for Enron: (1) Market-to-book (2) Price-earnings (using 2000 earnings per share) (3) Forward price-earnings (using consensus forecast earnings per share for 2001) 14.20 Market Multiples and Reverse Engineering Share Prices. In 2000, Enron enjoyed remarkable success in the capital markets. During that year, Enron's shares increased in value by 89%, while the S\&P 500 index fell by 9%. At the end of 2000 , Enron's shares were trading at roughly $83 per share, and all of the sell-side analysts following Enron recommended the shares as a "buy" or a "strong buy." With 752.2 million shares outstanding, Enron had a market capitalization of $62,530 million and was one of the largest firms (in terms of market capital) in the United States. At year-end 2000, Enron's book value of common shareholders' equity was $11,470 million. At year-end 2000, Enron posted earnings per share of $1.19. Among sell-side analysts following Enron, the consensus forecast for earnings per share was $1.31 per share for 2001 and $1.44 per share for 2002, with 10% earnings growth expected from 2003 to 2005 . At the time, Enron was paying dividends equivalent to roughly 40% of earnings and was expected to maintain that payout policy. At year-end 2000, Enron had a market beta of 1.7. The risk-free rate of return was 4.3%, and the market risk premium was 5.0\%. (Note: The data provided in this problem, and the inferences you draw from them, do not depend on foresight of Enron's declaring bankruptcy by the end of 2001.) a. Use the CAPM to compute the required rate of return on common equity capital for Enron. b. Use year-end 2000 data to compute the following ratios for Enron: (1) Market-to-book (2) Price-earnings (using 2000 earnings per share) (3) Forward price-earnings (using consensus forecast earnings per share for 2001)