Analysts believe that Manufactured Earnings is a “darling” of Wall Street analysts. Its current market price is $27 per share, and its book value is $11 per share. Analysts forecast that the firm’s book value will grow by 12.5 percent per year indefinitely, and the cost of equity is 17percent. Given these facts, what is the market’s expectation of the firm’s long-term average ROE?

Analysts believe that Manufactured Earnings is a “darling” of Wall Street analysts. Its current market price is $27 per share, and its book value is $11 per share. Analysts forecast that the firm’s book value will grow by 12.5 percent per year indefinitely, and the cost of equity is 17percent. Given these facts, what is the market’s expectation of the firm’s long-term average ROE?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 18MC

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