ABC Corp is expected to earn $6.00 per share over thenext year. The company plows back 35% of its earningsinto projects yielding 18%. Investors require a rate ofreturn of 14%. What price will they pay for the stock?

Expected Earning = e = $6Plows back = pb = 35%Yielding = y = 18%Required Rate of Return = r = 14%

Answered: ABC Corp is expected to earn $6.00 per…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

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ABC Corp is expected to earn $6.00 per share over the next year. The company plows back 35% of its earnings into projects yielding 18%. Investors require a rate of return of 14%. What price will they pay for the stock?