You are analyzing the price/book value ratios for firms in the trucking industry, relative to returns on equity and required rates of return. The data on the companies is provided below:
|
Company |
PBV |
ROE |
Beta |
|
Builders Transport |
2 |
11.50% |
1 |
|
Carolina Freight |
0.6 |
5.50% |
1.2 |
|
Consolidated Freight |
2.6 |
12.00% |
1.15 |
|
J.B. Hunt |
2.5 |
14.50% |
1 |
|
M.S. Carriers |
2.5 |
12.50% |
1.15 |
|
Roadway Services |
3 |
14.00% |
1.15 |
|
Ryder System |
2.25 |
13.00% |
1.05 |
|
Xtra Corporation |
2.8 |
16.50% |
1.1 |
The treasury bond rate is 7%.
a. Compute the average PBV ratio, return on equity and beta for the industry.
b. Based upon these averages, are stocks in the industry under or over valued relative to book values.