Using the chart below, compute the VRE ratio for each company and use it to dete

Q: Using the chart below, compute the VRE ratio for each company and use it to dete

VRE = ROE/price earning ratio = ROE * EPS/price a) VRE = 15% * 3/60 = 0.75 b) VRE = 20% * 2/30 = 1.33 c) VRE = 0.12 * 1.5/15 = 1.2 d) since for firms B and C , VRE is greater than 1, both will attractive for value investor choose d)

ID: 2793947 • Letter: U

Question

Using the chart below, compute the VRE ratio for each company and use it to determine which firm(s) might interest a value investor:

ROE Price EPS

Company A 15% $60 $3.00

Company B 20% $30 $2.00

Company C 12% $15 $1.50

a.Using the above information, calculate the VRE for Company A.

b.Using the above information, calculate the VRE for Company B.

c.Using the above information, calculate the VRE for Company C.

d.Based on the VRE calculations, which firm(s) would be attractive to a value investor?

Select one or more:

a. Company A

b. Company B

c. Company C

d. Both Company B and Company C.

Explanation / Answer

VRE = ROE/price earning ratio

= ROE * EPS/price

VRE = 15% * 3/60 = 0.75

VRE = 20% * 2/30 = 1.33

VRE = 0.12 * 1.5/15 = 1.2

since for firms B and C , VRE is greater than 1, both will attractive for value investor

choose d)

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Using the chart below, compute the VRE ratio for each company and use it to dete

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