phoebe black s investment club wants to buy the stock of either newsoft inc or capit 4372787

Phoebe Black’s investment club wants to buy the stock of either NewSoft, Inc. or Capital Corp. In this connection, Black prepared the following table. You have been asked to help her interpret the data, based on your forecast for a healthy economy and a strong stock market over the next 12 months. a. Newsoft’s shares have higher price-earnings (P/E) and price-book value (P/B) ratios than those of Capital Corp. (The price-book ratio is the ratio of market value to book value.) Briefly discuss why the disparity in ratios may not indicate that NewSoft’s shares are overvalued relative to the shares of Capital Corp. Answer the question in terms of the two ratios, and assume that there have been no extraordinary events affecting either company. b. Using a constant-growth dividend discount model, Black estimated the value of NewSoft to be $28 per share and the value of Capital Corp. to be $34 per share. View Solution:
Phoebe Black s investment club wants to buy the stock of

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