Based on the following regression whose output estimates the forward P/E ratiofor 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 (3 marks)
b)How reliable is this estimate and how do you know? (2 marks)
c)Describe a rational narrative in which a high P/E ratio suggests a good investment opportunity. (2
marks)
d)Describe a rational narrative in which a low P/E ratio suggests a good investment opportunity. (2 marks)
e)Why would the Price / Cash Flow ratio be more informative for high Beta companies during a recession
than the Price / Earnings ratio?
Sample Solution
