Regression of Price to Earning ratios on growth rates, betas, and payout ratios for stocks listed on the in April 2021. Thus a stock with an earnings growth rate of 20%, a beta of 1.15, and a payout ratio of 40% would have had an expected PE ratio of: You are attempting to value a private firm with the following characteristics: The firm had net profits of $10 million. It did not pay dividends, but had depreciation allowances of $5 million and capital expenditures of $12 million in the most recent year. Working capital requirements were negligible. The earnings had grown 25% over the previous five years, and are expected to grow at the same rate over the next five years. The average beta of publicly traded firms, in the same line of business, is 1.15, and the average debt-equity ratio of these firms is 25%. (The tax rate is 40%.) The private firm is an all-equity-financed firm, with no debt. P/E = 18.90 + 0.0695 *Growth - 0.5082 Beta - 0.4262 Payout Estimate the appropriate PE ratio for this private firm using the regression.
Regression of Price to Earning ratios on growth rates, betas, and payout ratios for stocks listed on the in April 2021.
Thus a stock with an earnings growth rate of 20%, a beta of 1.15, and a payout ratio of 40% would have had an expected PE ratio of:
You are attempting to value a private firm with the following characteristics:
The firm had net profits of $10 million. It did not pay dividends, but had depreciation allowances of $5 million and capital expenditures of $12 million in the most recent year. Working capital requirements were negligible.
The earnings had grown 25% over the previous five years, and are expected to grow at the same rate over the next five years.
The average beta of publicly traded firms, in the same line of business, is 1.15, and the average debt-equity ratio of these firms is 25%. (The tax rate is 40%.) The private firm is an all-equity-financed firm, with no debt.
P/E = 18.90 + 0.0695 *Growth - 0.5082 Beta - 0.4262 Payout
Estimate the appropriate PE ratio for this private firm using the regression.
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