A company projects a rate of return of 20% on new projects. The executive team plan to plow back 20% of all earnings into the firm. Earnings this year will be $6 per share, and investors expect a rate of return of 12% on stocks facing the same risks as the company. 1) what is the sustainable growth rate 2) what is the stock price 3) What is the present value growth opportunities 4) what is the P/E ration 5) what would the price and PE ratio be if the firm paid out all earnings as dividends?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
A company projects a
1) what is the sustainable growth rate
2) what is the stock price
3) What is the
4) what is the P/E ration
5) what would the price and PE ratio be if the firm paid out all earnings as dividends?
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