Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 30%, and it will maintain a plowback ratio of 0.30. Its projected earnings are $3 per share. Investors expect a 16% rate of return on the stock. a. At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price P/E ratio b. What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO c. What would be the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 20% of its earnings? (Do not round intermediate calculations. Round your answers to 2 decimal places.) P/E ratio PVGO tA TA
Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 30%, and it will maintain a plowback ratio of 0.30. Its projected earnings are $3 per share. Investors expect a 16% rate of return on the stock. a. At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price P/E ratio b. What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO c. What would be the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 20% of its earnings? (Do not round intermediate calculations. Round your answers to 2 decimal places.) P/E ratio PVGO tA TA
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
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Transcribed Image Text:Even Better Products has come out with a new and improved product. As a result, the
firm projects an ROE of 30%, and it will maintain a plowback ratio of 0.30. Its projected
earnings are $3 per share. Investors expect a 16% rate of return on the stock.
a. At what price and P/E ratio would you expect the firm to sell? (Do not round
intermediate calculations. Round your answers to 2 decimal places.)
Price
P/E ratio
b. What is the present value of growth opportunities? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
PVGO
c. What would be the P/E ratio and the present value of growth opportunities if the firm
planned to reinvest only 20% of its earnings? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
P/E ratio
PVGO
tA
TA
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