a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate o return do Nogro's investors require? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return % b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.
a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate o return do Nogro's investors require? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return % b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.
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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Question
Transcribed Image Text:Problem 18-12
The stock of Nogro Corporation is currently selling for $30 per share. Earnings per share in the coming year are expected to be $4.00.
The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that
earn a 16% rate of return per year. This situation is expected to continue indefinitely.
a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of
return do Nogro's investors require? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Rate of return
%
b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? (Do not
round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)
PVGO
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