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There are 500,000 outstanding shares of common stock in Katy Corporation. The sales revenue for...

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Finance

There are 500,000 outstanding shares of common stock in Katy Corporation. The sales revenue for the company is $50 million, the net profit for the company is $4 million, and the company would provide $1 dividend per share for the common stock this year. The stock price is currently at $8, and the earnings growth is constant at 5% each year.

a) Calculate the price/earnings (PE) ratio of the stock in Katy Corporation. (6 marks)

b) Calculate the price/earnings to growth (PEG) ratio of the stock in Katy Corporation. (3 marks)

c) David Limited is a major competitor of Katy Corporation. Currently, the PEG ratio of the common stock in David Limited is 2.3. Discuss (with not more than 100 words) whether you would recommend your investor to buy the common stock of Katy Corporation or not. (6 marks)

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