On January 1, 2020, an analyst prepares the following forecasts for RENDERS INC.: 2020 2021 2022 2023 2024 Total Profit 50% 10% 4% 3% 3% Growth Payout Ratio 30% 50% 90% 90% 90% RENDERS INC's cost of equity equals 10 percent. Calculate the analyst's expected value-to-earnings ratio for RENDERS INC. on January 1, 2020 if the analyst estimates that the company's abnormal earnings growth for 2024 and beyond equals 3 percent annually.

On January 1, 2020, an analyst prepares the following forecasts for RENDERS INC.: 2020 2021 2022 2023 2024 Total Profit 50% 10% 4% 3% 3% Growth Payout Ratio 30% 50% 90% 90% 90% RENDERS INC's cost of equity equals 10 percent. Calculate the analyst's expected value-to-earnings ratio for RENDERS INC. on January 1, 2020 if the analyst estimates that the company's abnormal earnings growth for 2024 and beyond equals 3 percent annually.

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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In the beginning of January 2023 you want to estimate the value of a stock. On December 31 2022 the price of the stock was $63.5 and you believe that the annual dividend growth rate and stock price growth rate will be 7% for the years 2023, 2024 and 2025. The dividend of 2022 will be paid in 2023 and will be S 1.48. The discount rate is 11.5%. Calculate the price of the stock and say if it is over or undervalued
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