Earnings this year will be $6 per share, and investors expect a rate of return of 8% on stocks facing the same risks as Web Cites.a. What is the sustainable growth rate?b. What is the stock price?c. What is the present value of growth opportunities (PVGO)?d. What is the P/E ratio?e. What would the price and P/E ratio be if the firm paid out all earnings as dividends?(Do not round intermediate calculations. Round your answers to 2 decimal places.)> Answer is complete but not entirely correct.a.Sustainable growth rate2.00%b.Stock price$91.84 xC.PVGO$(13.78) Xd.P/E ratio10.20 xe.Price$75.00P/E ratio12.50

Sustainable Growth Rate (SGR):The sustainable growth rate (SGR) is a measure that represents the…

Answered: Earnings this year will be $6 per…

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

See similar textbooks

Similar questions

What would the CAT stock value be if the constant growth rate were 5% instead of 4%? (The current dividend and the required rate of return are the same as in the previous example, $4.50 and 9.72%, respectively.) $______ (Hint: the growth rate, g, affects both the numerator and the denominator.) The value of the Caterpillar stock (with a $4.50 last-year dividend and a 4% growth rate, as in Example 1) three years from now is expected to be $_____, to the nearest penny. (Hint: to find the value of a constant growth stock expected n years from now, we need a dividend expected one year ahead, in year n+1.)
A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $59. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $44. What are the dividend yield and percentage capital gain in this case?
Find the value of a stock using the constant growth DDM, if the last dividend paid is $3 and the beta=1.3, market risk premium is 8%, risk free rate is 2.6% and the dividend growth rate is 2%?
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: High price Low price EPS Year 1 $ 62.18 40.30 2.35 a. High target price b. Low target price Year 2 $ 67.29 43.18 2.58 Year 3 $74.18 39.27 2.73 Year 4 $ 78.27 46.21 2.89 Earnings are expected to grow at 9 percent over the next year. a. What is the high target stock price in one year? Note: Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the low target stock price in one year? Note: Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
You know that the return of Sandhill Cyclicals common shares is 1.2 times as sensitive to macroeconomic information as the return of the market. If the risk-free rate of return is 5.00 percent and market risk premium is 5.71 percent, what is Sandhill Cyclicals’ cost of common equity capital? - Cost of common equity capital =?%
Which of the following statements is CORRECT? a. Two firms with the same expected dividend and growth rates must also have the same stock price. b. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant. c. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. d. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. e. The constant growth model takes into consideration the capital gains investors expect to earn on a stock.
You forecast the company A’s future earning is going to be $5.34 per share. The current market price is $55. What the market forward PE ratio? The estimated growth rate is 10%, what is the PEG ratio based on your estimate of growth rate? The industry average has a P/E ratio of 14 and growth rate of 12%, what does it mean for A’s stock price?
National Home Rentals has a beta of 1.06, a stock price of $17, and recently paid an annual dividend of $.92 a share. The dividend growth rate is 2.2 percent. The market has a rate of return of 11.2 percent and a risk premium of 7.3 percent. What is the estimated cost of equity using the CAPM? What is the estimated cost of equity using the dividend discount model? Re_CAPM Re_DGM de % % do
I am trying to get the 3M stock price using the Dividend Reinvestment Model. I think I should be using the growth rate based on calculating the % increase of dividends from previous years...is that correct or should I be using the dividend yield.....I don't think I should be using the dividend yield because that could change as the price goes up or down. It seems that 3M is way over-valued at the moment if I am doing this correctly.
2 (CAPM and expected returns) a. Given the following holding-period returns, compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 0.83 and the risk-free rate is 9 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? a. Given the holding-period returns shown in the table, the average monthly return for the Zemin Corporation is %. (Round to two decimal places.) The standard deviation for the Zemin Corporation is %. (Round to two decimal places.) Given the…
The share price of a company is shs100. Its expected next dividend is shs3. The dividend and share price growth rate is expected to be 4% p.a. The risk-free interest rate is 5% p.a. The share has a beta of 0.8 and the expected yield on the stock market as a whole is 8% p.a. Use the Gordon Growth Model and the Security Market Line to form an opinion as to whether the share is correctly priced.
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: High price Low price EPS Year 1 $ 85.61 68.33 6.46 a. High target price b. Low target price Year 2 $94.99 79.75 8.88 Year 3 $ 116.05 84.23 8.54 Year 4 $ 128.08 105.86 10.13 Earnings are expected to grow at 5.5 percent over the next year. a. What is the high target stock price over the next year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the low target stock price over the next year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS