The common stock of Permanent Assurance Corporation currently trades at $40.00 per share, which is approximates its intrinsic value. The company has announced plans to maintain its dividend next year at $1.20 per share. Your research indicates that historically, the firm's dividend payout ratio has averaged 50% while its return on equity averaged 9.0%. The book value of the shares is $25.00 and research shows there is relatively low variation in the firm's operations. You believe the firm's payout ratio and ROE should continue at their historic levels in the future over the long term. Enter your answers on the spreadsheet. Calculate the dividend yield of the firm's shares based on the announced dividend and rounded to 2 decimals: Dividend Yield:3.25% Estimate the long-term dividend yield based on the firm’s financial and operational performance based on the absolute approach and round to 2 decimals. Long-term dividend yield:3.25% Estimate the long-term growth rate for the firm’s EPS, cash flow, and dividends based on the absolute approach and round to 2 decimals. Long-term growth rate:3.60% Estimate the expected annual rate of return on the common over the long term based on the absolute approach and round to 2 decimals. Expected annual rate of return:9% Estimate the firm's PE multiple over the long term based on the absolute approach and round to 2 decimals. PE multiple:17.78% If the firm's ROE is forecast to decline to 8% in the future due a change in industry conditions, the firm's growth would be expected to: . Decrease. If the firm's ROE is forecast to decline to 8% in the future due a change in industry conditions, the firm's long term PE multiple would be expected to: Increase.
The common stock of Permanent Assurance Corporation currently trades at $40.00 per share, which is approximates its intrinsic value. The company has announced plans to maintain its dividend next year at $1.20 per share. Your research indicates that historically, the firm's dividend payout ratio has averaged 50% while its return on equity averaged 9.0%. The book value of the shares is $25.00 and research shows there is relatively low variation in the firm's operations. You believe the firm's payout ratio and ROE should continue at their historic levels in the future over the long term. Enter your answers on the spreadsheet. Calculate the dividend yield of the firm's shares based on the announced dividend and rounded to 2 decimals: Dividend Yield:3.25% Estimate the long-term dividend yield based on the firm’s financial and operational performance based on the absolute approach and round to 2 decimals. Long-term dividend yield:3.25% Estimate the long-term growth rate for the firm’s EPS, cash flow, and dividends based on the absolute approach and round to 2 decimals. Long-term growth rate:3.60% Estimate the expected annual rate of return on the common over the long term based on the absolute approach and round to 2 decimals. Expected annual rate of return:9% Estimate the firm's PE multiple over the long term based on the absolute approach and round to 2 decimals. PE multiple:17.78% If the firm's ROE is forecast to decline to 8% in the future due a change in industry conditions, the firm's growth would be expected to: . Decrease. If the firm's ROE is forecast to decline to 8% in the future due a change in industry conditions, the firm's long term PE multiple would be expected to: Increase.
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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The common stock of Permanent Assurance Corporation currently trades at $40.00 per share, which is approximates its intrinsic value. The company has announced plans to maintain its dividend next year at $1.20 per share. Your research indicates that historically, the firm's dividend payout ratio has averaged 50% while its
- Calculate the dividend yield of the firm's shares based on the announced dividend and rounded to 2 decimals:
Dividend Yield:3.25%
- Estimate the long-term dividend yield based on the firm’s financial and operational performance based on the absolute approach and round to 2 decimals.
Long-term dividend yield:3.25%
- Estimate the long-term growth rate for the firm’s EPS, cash flow, and dividends based on the absolute approach and round to 2 decimals.
Long-term growth rate:3.60%
- Estimate the expected annual
rate of return on the common over the long term based on the absolute approach and round to 2 decimals.
Expected annual rate of return:9%
- Estimate the firm's PE multiple over the long term based on the absolute approach and round to 2 decimals.
PE multiple:17.78%
- If the firm's ROE is
forecast to decline to 8% in the future due a change in industry conditions, the firm's growth would be expected to:
- .
- Decrease.
- If the firm's ROE is forecast to decline to 8% in the future due a change in industry conditions, the firm's long term PE multiple would be expected to:
- Increase.
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