Use the following information to answer the question(s) below.CompanyTickerPriceper ShareEarningsper ShareBook Valueper ShareAbbott LabsABT$54.35$3.69$13.79Bristol-Myers-SquibbBMY$25.45$1.93$7.33GlaxoSmithKlineGSK$41.3$3.15$6.03Johnson & JohnsonJNJ$62.6$4.58$18.27MerckMRK$36.25$3.81$10.86PfizerPFE$18.30$1.20$8.19Assuming that Novartis AG (NVS) has book value per share of $20.00, based upon the average price-to-book ratio for its competitors, Novartis' stock price is closest to:a.$44.60.b.$264.80.c.$137.00.d.$95.50e.$77.60.
Question
Use the following information to answer the question(s) below.CompanyTickerPriceper ShareEarningsper ShareBook Valueper ShareAbbott LabsABT3.6925.457.33GlaxoSmithKlineGSK3.156.03Johnson & JohnsonJNJ62.618.27MerckMRK3.8118.308.19Assuming that Novartis AG (NVS) has book value per share of 44.60.b.137.00.d.77.60.
Solution
To answer this question, we first need to calculate the average price-to-book (P/B) ratio for the competitors. The P/B ratio is calculated as the market price per share divided by the book value per share.
For Abbott Labs, the P/B ratio is 13.79 = 3.94. For Bristol-Myers-Squibb, the P/B ratio is 7.33 = 3.47. For GlaxoSmithKline, the P/B ratio is 6.03 = 6.85. For Johnson & Johnson, the P/B ratio is 18.27 = 3.43. For Merck, the P/B ratio is 10.86 = 3.34. For Pfizer, the P/B ratio is 8.19 = 2.23.
The average P/B ratio for these six competitors is (3.94 + 3.47 + 6.85 + 3.43 + 3.34 + 2.23) / 6 = 3.88.
Assuming that Novartis AG has the same P/B ratio as the average of its competitors, its stock price would be its book value per share times the average P/B ratio, or 77.60.
So, the correct answer is e. $77.60.
Similar Questions
Use the following information to answer the question(s) below. Company Ticker Price per Share Earnings per Share Book Value per Share Abbott Labs ABT $54.35 $3.69 $13.79 Bristol-Myers-Squibb BMY $25.45 $1.93 $7.33 GlaxoSmithKline GSK $41.3 $3.15 $6.03 Johnson & Johnson JNJ $62.6 $4.58 $18.27 Merck MRK $36.25 $3.81 $10.86 Pfizer PFE $18.30 $1.20 $8.19 Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the average P/E ratio for its competitors, Novartis' stock price is closest to: a. $43.47. b. $35.33 c. $31.86. d. $13.00. e. $44.35.
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