This problem explores the sensitivity of the value-earnings and value-to-book models to changes in underlying assumptions. We
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a. Assume that current period earnings per share were $1.00 for each of the following scenarios. Compute the value-earnings ratio based on projected one-year-ahead earnings under each of the following sets of assumptions:
![This problem explores the sensitivity of the value-earnings and](https://dsd5zvtm8ll6.cloudfront.net/si.question.images/image/images4/140-B-C-F-C-V(136)-1.png)
b. Assess the sensitivity of the value-earnings ratio to changes in the cost of equity capital and changes in the growth rate.
c. Compute the value-to-book ratio under each of the following sets of assumptions. Assume zero abnormal ROCE in the periods following the number of years of excess earnings.
![This problem explores the sensitivity of the value-earnings and](https://dsd5zvtm8ll6.cloudfront.net/si.question.images/image/images4/140-B-C-F-C-V(136)-2.png)
d. Assess the sensitivity of the value-to-book ratio to changes in the assumptions made about the various underlyingvariables.
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Related Book For
Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
ISBN: 140
7th Edition
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw
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