Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 08 Nov 2017 My Price 9.00

NewSoft Inc.

 

5.       Betty Black’s investment club wants to buy the stock of either NewSoft Inc. or Capital Corp. In this connection, Black has prepared the following table. You have been asked       to help her interpret the data, based on your  forecast  for  a  healthy  economy  and  a strong market over the next 12    months.

 

 

NewSoft  Inc.

Capital  Corp.

S& P  500 Index

Current price

$30

$32

n/a

Industry

Computer Software

Capital Goods

n/a

P/E ratio (current)

25×

14×

16×

P/E ratio (5-year avg.)

27×

16×

16×

P/B ratio (current)

10×

3×

3×

P/B ratio (5-year avg.)

12×

4×

2×

Beta

1.5

1.1

1.0

Dividend yield

0.3%

2.7%

2.8%

NewSoft’s shares have higher price/earnings (P/E) and price/book (P/B) ratios than those  of Capital Corp. Identify and briefly discuss three reasons why the disparity in ratios may not indicate that NewSoft’s shares are overvalued relative to the shares of Capital Corp. Answer the question in terms of the two ratios, and assume that there have been no ex- traordinary events affecting either  company.

 

 

Answers

Maurice Tutor
(5)
Status NEW Posted 08 Nov 2017 09:11 PM My Price 9.00

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