Market-based valuation problems
a. Problem 13 on page 458 of your textbook (6 points)
b. The following figures are for X-Bakery. All figures except the stock price are in millions.
Fiscal year-end 20X3 20X2 20X1
Total stockholder’s equity $55.60 $54.10 $52.60
Net revenues $77.30 $73.60 $70.80
Net income $3.20 $1.10 $0.40
Net CF from operations $17.90 $15.20 $12.20
Stock price $11.40 $14.40 $12.05
Shares outstanding 4.476 3.994 3.823

Calculate X-Bakery’s lagging P/E, P/CF, P/S, and P/B ratios. Judge whether the firm is undervalued or overvalued using the following relevant industry averages for 20X3 and the firm’s historical record. (6 points)
Lagging industry ratios 20X3
Price-to-earnings 8.6
Price-to-cash flow 4.6
Price-to-sales 1.4
Price-to-book value 3.6
c. The forecast for the forward earnings per share for the S&P500 was about $55. The 10 year Treasury bond yield at this time was about 4.1%. Given that the earnings yield on the S&P 500 is most recently about 0.5% above the 10-year Treasury yield, what would be the implied P/E ratio? What would be the forecast for the level of the S&P500 then? (3 points)