Problem 2 Indicate whether the following manager benchmarks are valid benchmarks: 1. top A. quartile manager returns. 2. Absolute returns. Justify your answers (3 Marks) B. A company has an expected dividend pay-out ratio of 60% and an expected future growth rate of 7%. What should be the firm's price to earnings ratio if the required rate of return on stocks of this type is 15%? If the market price earnings ratio is 8, indicate whether the stock is overvalued, undervalued or correctly priced? (1 Marks) C. You are researching the valuation of the stock of a company in the food processing industry. Suppose you intend to use the mean value of the forward P/E for the food processing industry stocks as the benchmark value of the multiple. This mean P/E is 18.0. The forward or expected EPS for the next year for the stock you're studying is $2.00. You calculate (18.0) ($2.0) = $36, which you take to be the intrinsic value of the stock based only on the information given here. Comparing $36 with the stock's current market price of $30, you conclude the stock is undervalued. Give reasons why your conclusion that the stock is undervalued maybe in error? What additional information about the stock and the peer group would support your original conclusion? (2 Marks) (6 Marks in Total)

Problem 2 A. Indicate whether the following manager benchmarks are valid benchmarks: 1. top quartile manager returns. 2. Absolute returns. Justify your answers (3 Marks) B. A company has an expected dividend pay-out ratio of 60% and an expected future growth rate of 7%. What should be the firm's price to earnings ratio if the required rate of return on stocks of this type is 15%? If the market price earnings ratio is 8, indicate whether the stock is overvalued, undervalued or correctly priced? (1 Marks) C. You are researching the valuation of the stock of a company in the food processing industry. Suppose you intend to use the mean value of the forward P/E for the food processing industry stocks as the benchmark value of the multiple. This mean P/E is 18.0. The forward or expected EPS for the next year for the stock you're studying is $2.00. You calculate (18.0) ($2.0) = $36, which you take to be the intrinsic value of the stock based only on the information given here. Comparing $36 with the stock's current market price of $30, you conclude the stock is undervalued. Give reasons why your conclusion that the stock is undervalued maybe in error? What additional information about the stock and the peer group would support your original conclusion? Problem 2 A. Indicate whether the following manager benchmarks are valid benchmarks: 1. top quartile manager returns. 2. Absolute returns. Justify your answers (3 Marks) B. A company has an expected dividend pay-out ratio of 60% and an expected future growth rate of 7%. What should be the firm's price to earnings ratio if the required rate of return on stocks of this type is 15%? If the market price earnings ratio is 8, indicate whether the stock is overvalued, undervalued or correctly priced? (1 Marks) C. You are researching the valuation of the stock of a company in the food processing industry. Suppose you intend to use the mean value of the forward P/E for the food processing industry stocks as the benchmark value of the multiple. This mean P/E is 18.0. The forward or expected EPS for the next year for the stock you're studying is $2.00. You calculate (18.0) ($2.0) = $36, which you take to be the intrinsic value of the stock based only on the information given here. Comparing $36 with the stock's current market price of $30, you conclude the stock is undervalued. Give reasons why your conclusion that the stock is undervalued maybe in error? What additional information about the stock and the peer group would support your original conclusion