Upon Analyzing the Financial Statements of Jain Industries, You Discover

question 29

Essay

Upon analyzing the financial statements of Jain Industries, you discover that it is currently retaining 60 percent of its earnings (which were $6 this past year) and is earning a ROE of almost 20 percent. Assuming a risk-free rate of 4 percent and a risk-premium for Jain of 8 percent, how much would you be willing to pay for Jain Industries stock on the basis of the P/E ratio approach?

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Definitions:

Alphabetical Order

A method of sorting by arranging items according to the sequence of the letters in the English alphabet.

Accounts Payable

Liabilities or amounts owed by a business to its creditors or suppliers for goods or services that have been received but not yet paid for.

T Account

The simplest form of an account, which consists of an account title, a debit side, and a credit side.

Debit

An accounting entry that increases an asset or expense account, or decreases a liability or equity account. It is positioned on the left side in accounting records.