Value Corp

question 56

Essay

Value Corp.recently reported earnings of $2 per share and each of their 50,000 shares is currently selling for $20.The firm's book equity is $600,000.An analyst has estimated that the firm's assets could be replaced for $1.8 million and that the Tobin's q for the firm is 1.4.[Note: Tobin's q is the ratio of market value of assets to replacement cost of the assets.] Given this information, answer the following about the firm's market-value ratios:
Calculate the firm's price-to-earnings (P/E) and market-to-book ratios.
If the P/E ratio is said to compare favourably to that of the industry average, speculate on what could account for this fact.
Calculate the firm's market value of assets and comment on the magnitude of their Tobin's q.

---

Definitions:

Finite Population

A set of data or a population that is limited or fixed in size, often used in statistical analysis to apply different formulae compared to an infinite population.

Average Service Time

The mean duration needed to complete service for a customer or process a task, commonly used in the evaluation of service and operational efficiency.

Service Factor

A multiplier used in engineering and operations management to account for potential variability in demand or capacity, ensuring systems can handle peak loads.