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Determining PB Ratio for Companies with Different Returns Assume that the present value of expected ROPI follows a perpetuity with growth g (Value = Amount/ [r - g])

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Determining PB Ratio for Companies with Different Returns

Assume that the present value of expected ROPI follows a perpetuity with growth g (Value = Amount/ [r - g]). Determine the theoretically correct PB ratio for each of the following companies A and B. Note: NOPAT = NOA × RNOA.

Company	Net Operating Assets	Equity	RNOA	ROE	Weighted Avg. Cost of Capital	Growth Rate in ROPI
A	$100	$100	18%	18%	10%	2%
B	$100	$100	11%	11%	10%	2%

 

Round answers to two decimal places.

	PB Ratio
Company A
Company B

 

 

 

Determining PB Ratio for Companies with Different Capitalization

Assume that the present value of expected ROPI follows a perpetuity with growth g (Value = Amount/ [r - g]). Determine the theoretically correct PB ratio for each of the following companies A and B.

Company	Net Operating Assets	Debt (6% Rate)	Equity	RNOA	ROE	Weighted Avg. Cost of Capital	Growth Ratein ROPI
A	$100	$0	$100	11%	11.0%	10%	0%
B	$100	$60	$40	11%	18.5%	10%	0%

 

Round answers to two decimal places.

	PB Ratio
Company A
Company B