As an analyst for Kingbird Inc., you are responsible for many firms, including ADFC. Currently you have a"hold" recommendation on ADFC. The current price of ADFC is $154. You have conducted an extensiveanalysis of the industry and you feel that the probability the firm will capture a substantial share of the newmarket is 25 percent. If the firm is able to capture the new market, you are expecting earnings to grow at arate of 45 percent per year for the next five years. In that case, the stock price would rise to $234 due to theunusually high growth rate of future earnings. However, you feel there is a 35-percent probability that thefirm will face serious difficulties in the near future, in which case the stock price will fall to $114, and theearnings growth rate will drop to 3 percent. There is a 40-percent chance that nothing will change for thefirm and its earnings growth rate will remain at 12 percent.Calculate the expected price in the future. (Round intermediate calculations to 4 decimal places, e.g. 31.2125and final answer to O decimal places, e.g. 145.)Expected price$150

To calculate the expected price in the future, we need to consider the probabilities and potential…

Answered: As an analyst for Kingbird Inc., you…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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