Solutions to Chapter 1

The stock price is unchanged, but earnings per share have increased by a factor of 1.5. Therefore, the P/E ratio must decrease by a factor of 1.5, from 10 to: 10/1.5 = 6.67. So, while expected earnings per share increase, the earnings multiple decreases, and the stock price is unchanged. 17. rassets = (0.8 ( 12%) + (0.2 ( 6%) = 10.8% ................
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