A firm has recently reported earnings per share of $ 14.00 and paid dividends per share of $6.77. The earnings have grown 5% a year. The shares have a beta of 1.20. The Treasury bond rate is 2% and the return on the market is 9.5%. Estimate the P/E ratio of the firm.

A firm has recently reported earnings per share of $ 14.00 and paid dividends per share of $6.77. The earnings have grown 5% a year. The shares have a beta of 1.20. The Treasury bond rate is 2% and the return on the market is 9.5%. Estimate the P/E ratio of the firm.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Suppose that the Kat Corporation over the past five years has had an average annual return of 7%. During that same period, the average annual return for the stock market was 3% and the average annual return on U.S. Treasury bills was 1%. The beta of Kat Corporation is estimated to be 2. What was Kat Corporation's excess return over the five-year period? O 3% O 4% O 5% O 6%
Assume that you are on the financial staff of ABC Enterprises, and you have collected the following data: (1) The yield to maturity on the company's outstanding 10% annual coupon bonds is 8%, and its tax rate is 25%. (2) The risk-free rate is 2%, the market risk premium (rM - rRF) is 5.5%, and the firm's beta is 1.20. (3) The firm's capital structure consists of 40% debt and 60% equity. What is ABC's WACC? a . 6.50% b. 7.14% c. 7.56% d. 7.90% e. 8.60%
XYZ Corporation's beta is calculated 1.20. The corporation paid $1.25 dividend last year. The growth rate in XYZ's earnings and dividends is estimated 25.00% for the next 5 years, after which the growth rate will be 2.00%. The risk-free rate of return is 3.00%, and XYZ's management estimates that the market return is 8.50%. Calculate the current common stock price of the corporation.
1. A company just paid dividends of $2.75 per share. The company has a constant growth of 5.5%. The risk free rate is 2.5%, beta is 0.90 and market return of 8%. The stock is selling at $75.50. 1. Determine the rate of return on equity. 2. What is the stock price after a year?
Tyres Limited has asked you to calculate the return on its ordinary shares to help in its calculation of its weighted average cost of capital (WACC). Tyres has 10,000,000 ordinary shares on issue that have a beta of 1.63. The last dividend was $9.56, and dividends have been growing at 2.7% per year. If the risk-free rate is 1.98% and the return on the market is 9.1%. What is the required return on one of Tyres’s ordinary shares?.
A firm's stock has a market capitalization of 520 million and an equity beta of 1.05. Bonds issued by the firm have a yield rate of 8.1%. Bonds with a similar debt rating has a default rate of 3.1% and a loss rate of 55%. The total market value of the firm's bonds is 280 million. The risk free rate is 1.9% and the market risk premium is 7.5%. The volatility of the market portfolio is 23%. Suppose that the CAPM assumptions hold. Calculate the covariance between the return of the firm's assets and the return of the market portfolio. O 0.0472 0.0434 0.0548 0.0585 O 0.0510
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Kirby Enterprises’s stock is currently selling for $32.45 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm’s growth rate to be constant at 7.27%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Kirby’s cost of internal equity? 14.51% 13.78% 18.14% 19.59% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: • Carry forward a historical realized growth rate, and apply it to the future. • Locate and apply an expected future growth rate prepared and published by security analysts. • Use the retention growth model. Suppose Kirby is currently distributing 75% of its earnings in the form of cash dividends. It has also historically…
Castles in the Sand generates a ROE of 25.0 percent and maintains a payout ratio of 0.6 . Its earnings this coming year will be $ 4.05 per share. Investors expect a return of 14.42 percent on the stock. What is the stocks P/E ratio?
Assume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 4% and that its dividend yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (DO) of $2. Analysts expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 20% during the second year (g1,2 = 20%). After Year 2, dividend growth will be constant at 4%. What is the required rate of return on C&J's stock? What is the estimated intrinsic price per share? Do not round intermediate calculations. Round the monetary value to the nearest cent and percentage value to the nearest
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Price/Earnings Ratio for the S&P 500 is 15 and the dividend payout ratio of the S&P 500 is 28%. The future growth rate of dividends is expected to be 3.35%. What is the expected return of the market?

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