Fristy Corporation Has a Book Value of Equity of $5,000

question 39

Multiple Choice

Fristy Corporation has a book value of equity of $5,000 at the beginning of 2005, and net income of $1,000 for year ended 2005. It pays no dividends, and its cost of equity capital is 10%. It expects return on beginning of year equity to remain constant for 2006 and 2007 and decrease to 10% thereafter. What should its price-to-book ratio be at the end of 2005 (pick closest number) ?

• A)1.01
• B)1.05
• C)1.09
• D)1.19

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