Seacrest Corporation is a privately-owned chemical company, that is expected to generate a return on equity of 20% next period and is in stable growth, growing 4% a year in perpetuity. Publicly traded chemical companies in stable growth, growing 4% a year, have a return on equity of only 12% and trade at 1.6 times book value. 

If publicly traded chemical companies are fairly priced and only 40% of the risk in a chemical company is market risk, estimate the price to book ratio for Seacrest. (The owner has his entire wealth invested in the company; the risk-free rate is 4% and the equity risk premium is 5%).

Answer rating: 100% (QA)

To estimate the pricetobook PB ratio for Seacrest Corporation we can use th... View the full answer