Price/Earnings Ratio Comparisons with Multiple Lines of Business Ford is considering the…

Price/Earnings Ratio Comparisons with Multiple Lines of Business Ford is considering the opportunity to enter the U.S. passenger bus market. Assume that General Motors (GM) currently produces similar buses from which it realizes 10 percent of its earnings. The rest of GM’s cash flows come from automobile lines that are essentially the same as Ford’s.        If GM’s price/earnings ratio is 9.7, and if the price/earnings ratio of its automobile division is (as seems reasonable) assumed to be the same as the price/earnings ratio of Ford, which is 10, what is the implied price/earnings ratio for the bus division? : A Case Where Leverage Increases the Price/Earnings Ratio The information below applies to Micro Technologies at the beginning of its fiscal year: Assume that Micro Technologies issues $100 million in debt at the beginning of the fiscal year at a rate of 6 percent, and that equity is decreased by the same amount through a repurchase of 10 million shares at $10 each (that is, assuming market value equals book value). Assuming no taxes and thus no response in stock price per share to the increase in leverage, how does the debt issue affect Micro’s balance sheet account and expected financial performance for the year?

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