Question

You forecast that Advanced Modem Communications (AMC) will have earnings per share next year (2020) of $3.50, and pays out 60% of earnings as dividends. You estimate that AMC earns a 12% return on new investments. AMC stock currently has a market price of $75.50 per share. You require a return of at least 9% on your investment.

19) Estimate the sustainable growth rate. Closest to: a) 2.8 % b) 3.0 % c) 4.0 % d) 4.8 %

20) Estimate the fair market value (intrinsic value) of this stock using the dividend discount model, assume a constant growth rate of 3.0%. Closest to: a) $ 31 b) $ 35 c) $ 39 d) $ 44

21) Estimate the no-growth value of AMC stock, i.e., the value if dividend payout = 100% of earnings. Closest to: a) $ 31 b) $ 35 c) $ 39 d) $ 44

Answer 1