Question 5 a) Based on the following regression whose output estimates the forward P/E ratio for the media industry, estimate the price for CanWest if it just announced earnings of $2.75 per share and has the following known characteristics: Beta = 1.3, Payout = 0.55, Earnings Growth = 0.07 (3 marks) Regression Statistics Multiple R 0.534936 R Square 0.286157 Adjusted R Square 0.195028 Standard Error 0.038288 Observations Intercept Beta Payout Earnings Growth Coefficients 14.23657 -0.10747 -0.61999 5.12223 Standard Error 2.41333 0.136177 0.274706 2.45351 t Stat 5.89914 -0.78923 -2.25693 2.087717 P-value 0.000062 0.433942 0.028702 0.04227 b) How reliable is this estimate and how do you know? (2 marks) c) Describe a rational narrative in which a high P/E ratio suggests a good investment opportunity. (2 marks) d) Describe a rational narrative in which a low P/E ratio suggests a good investment opportunity. (2 marks) e) Why would the Price / Cash Flow ratio be more informative for high Beta companies during a recession than the Price / Earnings ratio? (1 mark) Question 5 a) Based on the following regression whose output estimates the forward P/E ratio for the media industry, estimate the price for CanWest if it just announced earnings of $2.75 per share and has the following known characteristics: Beta = 1.3, Payout = 0.55, Earnings Growth = 0.07 (3 marks) Regression Statistics Multiple R 0.534936 R Square 0.286157 Adjusted R Square 0.195028 Standard Error 0.038288 Observations Intercept Beta Payout Earnings Growth Coefficients 14.23657 -0.10747 -0.61999 5.12223 Standard Error 2.41333 0.136177 0.274706 2.45351 t Stat 5.89914 -0.78923 -2.25693 2.087717 P-value 0.000062 0.433942 0.028702 0.04227 b) How reliable is this estimate and how do you know? (2 marks) c) Describe a rational narrative in which a high P/E ratio suggests a good investment opportunity. (2 marks) d) Describe a rational narrative in which a low P/E ratio suggests a good investment opportunity. (2 marks) e) Why would the Price / Cash Flow ratio be more informative for high Beta companies during a recession than the Price / Earnings ratio? (1 mark)