Use the Following Information to Answer the Requirements Required:
A

question 50

Essay

Use the following information to answer the requirements:
$\begin{array}{|l|l|l|}\hline & \text { Conmany X } & \text { Conmany Y } \\\hline \text { Reported EPS } & \$ 15.00 & \$ 15.00 \\\hline \text { EPS decomposed: } & & \\\hline \text { Permanent } & 75 \% & 65 \% \\\hline \text { Transitory } & 20 \% & 25 \% \\\hline \text { Value-irrelevant } & 5 \% & 10 \% \\\hline & & \end{array}$
Required:
a. Use a risk-adjusted cost of capital of 15% to calculate each firm's implied share price and earning multiples. What are the implicit share prices and earnings multiples for the two firms different?
b. Repeat requirement a., but use a risk-adjusted cost of capital of 8% instead.

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Definitions:

Functional Currency

The primary currency used by a business or entity in its financial operations and reporting.

Current Monetary Assets

Assets held by a company that are in the form of cash or can be easily converted into cash within a short period, typically one year.

Total Liabilities and Equity

The sum of all liabilities (what a company owes) plus the owners' equity (the original investment plus any retained earnings).

Exchange Rates

The rate at which one currency can be exchanged for another, affecting international trade and investments.