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

 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

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