Question 3
On August 1, 2007 the Dell Computer Corporation’s stock closed trading at $27.76 per share while Apple Corporation’s shares closed at $133.64. Does this mean that because Apple’s stock price is roughly four times that of Dell’s, Apple is the more valuable company? Interpret the prices for these two firms using the following information.
| (Most recent 12 months) | Dell 2007 | Apple 2007 | |||
| Net Income ($ millions) | $3,572 | $3,130 | |||
| Shares outstanding (millions) | 2,300 | 869.16 | |||
| Earnings per share ($) | $1.55 | $3.60 | |||
| Price per share (8/1/07) | $27.76 | $133.64 | |||
| Price-to-earnings ratio (PE ratio) | 17.91 | 37.11 | |||
| Book value of common equity ($ millions) | $4,129 | $9,984 | |||
| Book value per share ($) | $1.80 | $11.49 | |||
| Market-to-book ratio | 15.42 | 11.63 | |||
It appears that Apple enjoys a (Lower or higher) price per share when compared to its 2007 earnings but a (higher or lower) price when compared to the book of value of the firm’s equity. The (higher or lower) market-to-book ratio for Apple reflects that fact that Apple has used a great deal (more or less) equity and (less or more) debt to finance its operations. ***Which answers in the () is correct?
Question 4
What is the future value of $480 per year for 10 years compounded annually at 10%?
Question 5
What is the present value of $3,500 per year for 8 years discounted back to the present at 10%
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