An analyst just received the following information for Mythical Interactions, Inc. A senior equity trader in her group wants to know if he should purchase a large block of the stock. Earnings retention rate at 65% Required rate of return, ken, of 11% Return on equity (ROE) of 13%, expected to remain constant Estimated Sales per share of $175 Estimated EBIDTA profit margin of 22% Estimated Depreciation per share of $ 20 Estimated Interest Expense per share of $12 Corporate Tax Rate of 40% Current market price is $ 45.50 per share Based on the assumptions above, which of the following recommendations is CORRECT The analyst should advise the trader to:（）
A. not purchase the stock. It is overvalued by approximately $10.20.
B. not purchase the stock. It is overvalued by approximately $8.00.
C. purchase the stock. It is undervalued by approximately $8.00.
参考答案：C
解析：
To determine whether the trader should purchase the stock, we need to determine if the stock is overvalued or undervalued. Given the information in this problem, we will use the price/earnings (P/E) ratio and the earnings per share (EPS) to calculate an estimated value. The P/E ratio=Dividend Payout Ratio/(k-g), Dividend payout=1-retention=1-0.35=0.65 g=retention rate×ROE=0.65×0.13=0.0845 P/E=0.35/(0.11-0.0845)=13.725 EPS=[(Per share Sales Estimate)×(EBITDA %)-D(per share)-I(per share)]×(1-t)=[($0.175×0.22)-$20-$12]×(1-0.40)=$3.90 Value of stock=EPS×P/E=13.725×$ 3.90=approximately $ 53.50 Conclusion: The trader should purchase a block of the stock. It is undervalued by the difference between the market price and the estimated value, $ 53.50 -$ 45.50, or approximately $ 8.00.