... reported profits. Allied’s stock sells for $23, so with an EPS of$2.27 its P/E ratio is 10 .1: As we will see in Chapter 9, P/E ratios are higher for firms with strong growthprospects, other things ... to equal a company’s cost of capital as defined in Chapter 10.Rate of return on investors' capital ϭNet income ϩ InterestDebt ϩ Equity. CHAPTER 1 ■ AN OVERVIEW OF FINANCIAL MANAGEMENT10many ... Management, 7th ed. (Fort Worth, TX: Harcourt College Publishers, 2002), Chapter 24 Extensions.PROBLEMS WITH ROEIn Chapter 1 we said that managers should strive to maximize shareholderwealth....