The Following Information on the Stock of Avon, Inc

question 8

Multiple Choice

The following information on the stock of Avon, Inc.was obtained on Thursday, November 11, 1999: P/E ratio = 24.36, and the latest annual earnings is E_t = 1.17 per share.If we assume that the expected return on Avon stock is r_E=9%, what is the present value of Avon's profitable future investment opportunities (PVPFIO) ?

• A)$ 7.25
• B)$13.25
• C)$20.25
• D)$27.25

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Definitions:

Market/Book Ratio

A financial ratio that compares a company's market value to its book value, providing an indication of investor expectations and valuation.

Stock Price

The current price at which a share of a company is trading on the stock market.

Book Value

The net value of a company's assets minus its liabilities, as recorded on its financial statements; often compared to the company's market value.

Common Dividends

Payments made out of a company's profits to shareholders, representing a share in the earnings of the company.