For the past 15 years, the P/E ratio of North/South Travel has been between 28 and 30.

For the past 15 years, the P/E ratio of North/South Travel has been between 28 and 30.

Problem 7.18: For the past 15 years, the P/E ratio of North/South Travel has been between 28 and 30. If North/South’s earnings per share equal $4, in what price range would you estimate its stock should be selling?

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Problem 7.19: RJS generated $65,000 net income this year. The firm’s financial statements also show that its interest expense was $40,000, its marginal tax rate was 35%, and its invested capital was $800,000. If its average cost of funds is 12%, what was RJS’s economic value added (EVA) this year?

 

Problem 7.20: Backhaus Beer Brewers (BBB) just announced that the current fiscal year’s net income was $1.2 million. BBB’s marginal tax rate is 40%, its interest expense for the year was $1.5 million, it has $8 million invested capital, and its average cost of funds was 10%. What is BBB’s economic value added (EVA) for the current year?

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