1. Suppose we consider a firm with positive net present value of growth opportunities. We saw that the price of the stock could be expressed as follows: If we divide each side of the equation by the firm's earnings per share, we arrive at a P/E ratio for which we could use to compare firms which have similar P/E multiples. However, this begs the question of just how comparable these firms are to each other. Explain how each of those determinants plays a part across supposedly similar firms.

Mae jong corp. issues $1,000,000 of 10% bonds payable which may be converted into 10,000 shares of $2 par value ordinary shares. the market rate of interest on similar bonds is 12%. interest is payable annually on december 31, and the bonds were issued for total proceeds of $1,000,000. in accounting for these bonds, mae jong corp. will: (a) first assign a value to the equity component, then determine the liability component. (b) assign no value to the equity component since the conversion privilege is not separable from the bond.(c) first assign a value to the liability component based on the face amount of the bond.(d) use the “with-and-without” method to value the compound instrument.