Value Corp

question 44

Essay

Value Corp. recently reported earnings of $2 per share and each of its 50,000 shares is currently selling for $20. The firm's book equity is $600,000. Given this information, answer the following about the firm's market-value ratios:
a. Calculate the firm's price-to-earnings (P/E) and market-to-book ratios.
b. If the P/E ratio is said to compare favorably to that of the industry average, speculate on what could account for this fact.

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Definitions:

Office Equipment

Tangible assets such as desks, computers, and printers used in the operations of an office.

Production Equipment

Tools or machinery used in the manufacturing process to create products.

Depreciation

The accounting method of allocating the cost of a tangible asset over its useful life, reflecting its decrease in value over time.

Equipment

Physical assets used in the operation of a business to produce goods or services.