Question

A. Growth and Value A firm has projected earnings of $6 per share for next year...

A.

Growth and Value A firm has projected earnings of $6 per share for next year and has a 30% dividend payout ratio. The firm's required return is 13%. The firm's ROE is 14%. What is the intrinsic value of the stock?

$56.25

$54.33

$50.77

$49.65

B.

Value of Growth Opportunities A firm has projected annual earnings per share of $4.00 and a dividend payout ratio of 60%. The firm's required return is 11% and dividends and earnings are expected to grow at 3% per year indefinitely. For this firm the present value of its growth opportunities is ________.

$66.36

$69.65

$53.63

$12.73

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
A) Po = D1/k-g
EPS $6
Dividend = 6*0.30 1.8
g = 0.14*(1-0.30) 0.098
P0 = 1.80/(0.13-0.098)
56.25
B) EPS = $4
Dividend payout ratio = 0.60
Required return = 11%
Dividends and earnings are expected to grow at 3%
Present value of growth opportunities = ?
Dividend = 4*0.60 2.4
P0 = 2.4/(0.11-0.03)
30
P0 = EPS/required return + PVGO
30 = 4/0.11 + PVGO
30 - 36.36 = PVGO
PVGO = -$6.36
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Laurel Enterprises expects earnings next year of $4 per share. The company will pay out all...
Laurel Enterprises expects earnings next year of $4 per share. The company will pay out all of its earnings to investors. Its expected return on new investment (i.e., ROE) is 12%. The required rate of return is 10%. What is the intrinsic value of the stock today? Laurel Enterprises expects earnings next year of $4 per share. The company will retain $2.4 of its earnings to reinvest in new projects that have an expected return of 12% per year (i.e.,...
5.5 Firm X is priced at $10 per share. Expected dividend next year is $1 per...
5.5 Firm X is priced at $10 per share. Expected dividend next year is $1 per share, and the expected stock price next year is $11. Therefore, stock is expected to earn (11 + 1 – 10)/10 = 20%. This implies that the company has required rate of return that is also 20%. (True / False) 5.6 When ROE < k, increasing _______ should increase the intrinsic value of equity.               a. Retention ratio               b. Dividend payout               c....
Rose Hill Trading Company is expected to have earnings per share in the upcoming year of...
Rose Hill Trading Company is expected to have earnings per share in the upcoming year of $8. The expected ROE is 18%. An appropriate required return on the stock is 14%. The firm has a dividend pay-out ratio of 40%. Required: (4*2.5 = 10pts) A. Calculate the growth rate of the firm.B. What is the intrinsic value of the firm? C. What is the present value of its growth opportunities? D. Calculate the expected dollar dividend payment of the firm...
Hewlett-Packard’s (HP) expected dividends for the coming year are $0.60 and expected earnings per share are...
Hewlett-Packard’s (HP) expected dividends for the coming year are $0.60 and expected earnings per share are $0.80. The required rate of return for HP is 15%. HP’s ROE is 18% and plowback ratio is 25%. Using the constant-growth dividend discount method, calculate the firm’s intrinsic value. (10 points) Calculate the present value of growth opportunities for HP. (10 points) Suppose you found a positive PVGO for HP. In this case, should the firm continue with its current dividend policy or...
Dividends discount model: The MBS Corporation’s dividends per share are expected to grow indefinitely by 5%...
Dividends discount model: The MBS Corporation’s dividends per share are expected to grow indefinitely by 5% per year. DDa.       If this year-end dividend is $8 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM (Dividends Discounting Model)? DDb.      If the expected earnings per share are 12$, what is the implied value of the ROE on future investment opportunities? DDc.       How much is the market paying per share for growth opportunities (i.e., for...
Apple Inc. has expected earnings of $6 per share for next year. The company's return on...
Apple Inc. has expected earnings of $6 per share for next year. The company's return on equity ROE is 20% and its earnings retention ratio is 70%. If the company's market capitalization rate is 15%, what is the present value of its growth opportunities if the company's expected P/E ratio is 30?
16) Firm TUV expects to earn $6 per share next year. In the next three years,...
16) Firm TUV expects to earn $6 per share next year. In the next three years, the firm’s ROE is expected to be 12%, 15%, 18%, respectively, and its dividend payout ratio is 90%. After that, the firm's ROE is expected to increase to 25%, and the firm will set the dividend payout ratio = 60%. Assume that the discount rate is 20%. Find the stock price
Abel, Inc., has expected earnings of $3 per share for next year. The firm's ROE is...
Abel, Inc., has expected earnings of $3 per share for next year. The firm's ROE is 20%, and its earnings retention ratio is 50%. If the firm's market required rate on the stock is 15%, what is the present value of its growth opportunities? A. Less than $12 B. Higher than $12 but less than $15 C. Higher than $18 but less than $20 D. Higher than $22
The FI Corporation’s dividends per share are expected to grow indefinitely by 6% per year. a....
The FI Corporation’s dividends per share are expected to grow indefinitely by 6% per year. a. If this year’s year-end dividend is $7.00 and the market capitalization rate is 8% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $21.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) c. How much is the market paying per share...
if a companys stock is currently trading its intrinsic value of $30, the projected earnings per...
if a companys stock is currently trading its intrinsic value of $30, the projected earnings per share is $3.00 and the required rate of return on common stock is 12 percent, what is the present value of growth opportunities
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT