Answer the following questions; A number of publicly traded firms pay no dividends yet...
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Accounting
Answer the following questions;
- A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. How is this possible? Does this violate our basic principle of stock valuation? Explain.
- What is the difference between the EV/EBITDA ratio and the PE ratio?
- What are the components of the required rate of return on a share of stock? Briefly explain each component.
- Suppose we consider a firm with positive net present value of growth opportunities. We saw that the price of the stock could be expressed as follows:
P=EPS/i + NPVGO
If we divide each side of the equation by the firms earnings per share, we arrive at a P/E ratio for which we could use to compare firms which have similar P/E multiples. However, this begs the question of just how comparable these firms are to each other. Explain how each of those determinants plays a part across supposedly similar firms.
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