Question

a) Based on the following regression whose output estimates the forward P/E ratio for the media...

a) Based on the following regression whose output estimates the forward P/E ratio for the media industry, estimate the price for CanWest if it just announced earnings of $2.75 per share and has the following known characteristics: Beta = 1.3, Payout = 0.55, Earnings Growth = 0.07

Regression Statistics Multiple:

R 0.534936

R Square 0.286157

Adjusted R Square 0.195028

Standard Error 0.038288

Observations 54

Coefficients

Standard Error

t Stat

P-value

Intercept

14.23657

2.41333

5.89914

0.000062

Beta

-0.10747

0.136177

-0.78923

0.433942

Payout

-0.61999

0.274706

-2.25693

0.028702

Earnings Growth

5.12223

2.45351

2.087717

0.04227

b) How reliable is this estimate and how do you know?

c) Describe a rational narrative in which a high P/E ratio suggests a good investment opportunity.

d) Describe a rational narrative in which a low P/E ratio suggests a good investment opportunity.

e) Why would the Price / Cash Flow ratio be more informative for high Beta companies during a recession than the Price / Earnings ratio?

Math   Statistics-And-Probability   
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