Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 20%, and It will maintain a plowback ratio of 0.30. Its projected earnings are $3 per share. Investors expect a 14% 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.) 1 of 14 Next > Prev

Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 20%, and It will maintain a plowback ratio of 0.30. Its projected earnings are $3 per share. Investors expect a 14% 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.) 1 of 14 Next > Prev

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

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A company will produce $3.00 in earnings per share at the end of the year. Reinvested earnings can produce a 14% return on equity. What is the PVGO if the company decides on a 30.0% plowback policy? Assume that investors have a 9.0% required rate of return. a. $10.42 b. $12.56 c. $13.86 d. $15.56
Good choice! Darnell What about Kraft Heinz. They currently pay an annual dividend of $3.71 and we expect that to grow at a constant rate of 2.4%. Assuming the market requires a(n) 8.3% return from Kraft Heinz, what is their stock worth? (Answer with 2 decimals.) Kalah Collins Correct! $64.39 Kalah Collins It seems risky to assume they will always increase their dividend in the future. Darnell Good point. How much is their stock worth if they were to stop growing their dividend at 2.4% after 3 years and instead grow at 1.3% after that, indefinitely? (Hint: Round intermediate calculations to 2 decimals and input final answer with 2 decimals). Enter a response then click Submit below Submit
I need help on this question ASAP: A start-up technology company has projected earnings per share of $4.50. If the average technology industry P/E ratio is 30, what would the company's projected stock price be?
A firm has an asset turnover ratio of 5.0. Its plowback ratio is 50%, and it is all-equity-financed. If the profit margin of the firm is 3%, what is the maximum payout ratio that will allow it to grow at 5% without resorting to external financing? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Maximum payout ratio %
Old Comm Corp. is an old company in an industry which is declining. You are trying to determine what a fair price for the company would be given these facts. You know the firm just paid a dividend of $3.01. You expect the industry to shrink by -13.3% a year and assume this can be used as the firm's growth rate. Your estimated discount rate for the firm is 10.996. Given your assumptions, what should be the price of Old Comm Corp.? Answer with dollars and cents
Innovative Group Ltd, an IT company, is undertaking a new project to develop software for Fair Supermarkets. As such, it is expected that the company has an ROE of 24% and a plowback ratio of 0.30. The forecasted earnings of the company for the first year from now are $2 per share. Investors expect a 12% rate of return on the company’s stock. (need full process) Calculate the price at which this company’s stock should sell using the constant-growth dividend discount model. Calculate the present value of growth opportunities for this company. If this company plans to reinvest only 20% of its earnings, will dropping the reinvestment rate from 30% to 20% be a good decision for the company? Why? Your valuation in part (a) is based on the new project undertaken by the company to develop software for Fair Supermarkets. However, recent developments have informed you that the company will not be able to continue to do this project…
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You forecast the company RIO will have a sustainable ROE of 15% in the future, similar to the industry average of 15%. The company has a dividend payout ratio of 50% versus industry average of 50%. The company had less debt and operation leverage compare to industry, as a result , RIO has a beta of 1.8 versus the industry average of 2. Based on these information, should the company RIO have a higher or lower PE ratio than the industry average ? Given a risk free rate of 2% and market risk premium of 8%, what is RIO’s “intrinsic” forward PE ratio based on formula?
Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): rRF = 4%; rM = 9%; RPM = 5%, and beta = 1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. ? % If inflation increases by 1% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. ? % Assume now that there is no change in inflation, but risk aversion increases by 2%. What is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. ? % If inflation increases by 1% and risk aversion increases by 2%, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. ? %
Equity holders’ investment in the firm is K100 million, and the beta of the equity is 0.6. if the T-bill rate 6 %, and the market risk premium is 8 %. What would be a fair annual profit?
the first answer is still incorrect

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