1. Samphone, Inc. has a P/E ratio of 23. You collect data for firms that you believe have similar fundamental characteristics to Samphone, and find that the average P/E ratio for those firms is 20. If Samphone's current earnings per share is $5, then:
A) Samphone is overvalued and should be priced at $100 per share
B) Samphone is undervalued and should be priced at $100 per share
C) Samphone is overvalued and should be priced at $115 per share
D) Samphone is undervalued and should be priced at $115 per share
2. A project with which one of these sets of attributes would you be most likely to reject?
Low operating leverage, sales projected at the economic break-even level, and an option to expand.
High operating leverage, sales projected at the economic break-even level, and an option to adandon.
High operating leverage, sales projected at the accounting break-even level, and no option to abandon.
Low operating leverage, sales projected at the accounting break-even level, and an option to abandon.