Take Rf=4%, E[RM]=8%. Gamma Corporation has a CAPM beta of 1.1 and its earnings are expected to grow at 2% per year. Gamma Corp pays out 60% of its earnings. Investors who receive the dividend face a personal income tax rate of 20%. What is the P/E ratio of Gamma Corp? Your Answer:

Take Rf=4%, E[RM]=8%. Gamma Corporation has a CAPM beta of 1.1 and its earnings are expected to grow at 2% per year. Gamma Corp pays out 60% of its earnings. Investors who receive the dividend face a personal income tax rate of 20%. What is the P/E ratio of Gamma Corp? Your Answer:

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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Question

Take Rf=4%, E[RM]=8%. Gamma Corporation has a CAPM beta of 1.1 and its earnings are
expected to
grow at 2% per year. Gamma Corp pays out 60% of its earnings. Investors who receive the
dividend face
a personal income tax rate of 20%.
What is the P/E ratio of Gamma Corp?
Your Answer:

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Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%, its tax rate is 25%, the next expected dividend is $0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is $14.00 per share, the flotation cost for selling new shares is F = 10%, and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget? 9.96% 7.98% 10.12% 8.75% 8.23%
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