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:

Long Run

A period in economics sufficient for all factors of production and costs to be variable, allowing firms to adjust to market conditions fully.

Bumper Crops

An exceptionally large crop yield, often much higher than average.

Gross Incomes

The total income received before any deductions or taxes are applied.

Price Elasticity of Demand

The evaluation of how the quantity demanded for a product is influenced by price movements.