AAFM CWM_LEVEL_2 Question Answer
Section C (4 Mark)
NCH Corporation, which markets cleaning chemicals, insecticides and other products, paid dividends of Rs2.00 per share in 1993 on earnings of Rs4.00 per share. The book value of equity per share was Rs40.00, and earnings are expected to grow 6% a year in the long term. The stock has a beta of 0.85, and sells for Rs60 per share. (The treasury bond rate is 7%.)
Based upon these inputs, estimate the price/book value ratio for NCH and How much would the return on equity have to increase to justify the price/book value ratio at which NCH sells for currently?
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