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year for the next 5 years. The stock price is expected to increase in value by 60 percent over the next 3 years. If you believe that investors require a 17 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.

year for the next 5 years. The stock price is expected to increase in value by 60 percent over the next 3 years. If you believe that investors require a 17 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.

Essentials Of Investments
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
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Konawalski’s Kustom Erdapfel Chips, Inc., is the maker of gourmet German-style potato chips. The company began business three years ago in rural North Carolina and grew quickly as the product became known. Konawalski is now poised for national growth. Some analysts call the firm the next Krispy Kreme. The company pays a dividend of $0.05 per share. Earnings per share are currently $0.60, and analysts expect both earnings and dividends to grow at 17 percent per year for the next 5 years. The stock price is expected to increase in value by 60 percent over the next 3 years. If you believe that investors require a 17 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.

TABLE I Present Value Interest Factor (PVIF) ($1 at i % per period for n periods); PVIF = (1+ i" ; PVo = FV,(PVIF;a) %3D Period, n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 1.000 1.000 1.000 1.000 1.000 0.962 0.925 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.893 1.000 1 0.990 0.980 0.971 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.885 0.842 0.772 0.980 0.961 0.943 0.907 0.890 0.873 0.857 0.826 0.812 0.797 0.783 3 0.971 0.942 0.915 0.889 0.864 0.840 0.792 0.747 0.705 0.816 0.794 0.751 0.731 0.712 0.693 4 0.961 0.659 0.924 0.889 0.863 0.838 0.855 0.823 0.763 0.735 0.681 0.708 0.683 0.636 0.613 0.650 0.596 0.547 0.951 0.906 0.822 0.784 0.713 0.621 0.593 0.567 0.543 0.942 0.888 0.933 0.871 0.790 0.746 0.666 0.630 0.564 0.535 0.507 0.480 7 0.813 0.760 0.711 0.665 0.623 0.583 0.513 0.482 0.452 0.425 0.731 0.703 0.676 8 0.923 0.853 0.789 0.677 0.627 0.592 0.558 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.460 0.422 0.914 0.837 0.766 0.645 0.544 0.424 0.391 0.500 0.463 0.361 0.333 10 0.905 0.820 0.744 0.614 0.508 0.386 0.352 0.322 0.295 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.397 0.388 0.350 0.317 0.287 0.261 0.887 0.319 0.257 0.229 12 0.788 0.701 0.625 0.557 0.497 0.444 0.356 0.286 0.231 0.415 0.388 0.362 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.326 0.290 0.299 0.263 0.258 0.204 0.181 0.577 0.555 0.534 0.340 0.315 0.292 0.270 0.442 0.417 14 0.870 0.758 0.661 0.505 0.232 0.205 15 0.861 0.743 0.642 0.481 0.275 0.239 0.218 0.198 0.180 0.209 0.183 0.160 16 0.853 0.728 0.623 0.458 0.394 0.339 0.252 0.188 0.163 0.141 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.231 0.170 0.146 0.125 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.153 0.130 0.111 0.116 0.104 19 0.828 0.686 0.570 0.475 0.396 0.331 0.276 0.258 0.232 0.215 0.158 0.194 0.164 0.456 0.390 0.138 0.124 0.098 0.087 0.053 20 0.820 0.673 0.554 0.377 0.312 0.178 0.149 0.622 0.610 24 0.788 0.492 0.310 0.247 0.197 0.126 0.102 0.082 0.066 0.116 0.075 25 0.780 0.478 0.375 0.295 0.233 0.184 0.146 0.092 0.074 0.059 0.047 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.057 0.022 0.044 0.015 0.033 0.026 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.011 0.008 0.003 0.001 50 0.002 0.608 0.550 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.005 60 0.305 0.170 0.095 0.054 0.030 0.017 0.010 0.006 0.003 0.002 0.001 Period, n 14% 15% 16% 17% 18% 19% 20% 24% 28% 32% 36% 40% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.735 1.000 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.806 0.781 0.758 0.714 0.510 0.364 0.706 0.593 0.499 0.419 0.352 0.610 0.769 0.675 0.756 0.658 0.743 0.731 0.718 0.694 0.650 0.574 0.435 0.329 0.541 0.641 0.624 0.609 0.579 0.524 0.477 0.398 0.423 0.373 0.592 0.519 0.572 0.552 0.534 0.516 0.437 0.482 0.292 0.260 0.497 0.476 0.456 0.402 0.341 0.291 0.250 0.215 0.186 0.456 0.335 0.133 0.432 0.376 0.410 0.354 0.390 0.370 0.275 0.227 0.189 0.143 0.158 0.400 0.333 0.314 0.296 0.279 0.222 0.178 0.116 0.095 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.179 0.144 0.139 0.108 0.085 0.068 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.108 0.082 0.063 0.048 0.227 0.195 0.168 10 0.270 0.247 0.208 0.191 0.035 0.176 0.148 0.124 0.162 0.116 0.094 0.085 0.062 0.046 0.237 0.034 0.025 11 0.215 0.178 0.162 0.135 0.066 0.047 0.025 12 0.208 0.187 0.152 0.137 0.112 0.076 0.052 0.036 0,018 0.163 0.141 0.123 0.107 13 0.182 0.145 0.130 0.116 0.104 0.093 0.078 0.061 0.040 0.027 0.018 0.013 0.049 0.040 14 0.160 0.125 0.108 0.111 0.099 0.088 0.032 0.021 0.014 0.009 0.095 0.081 15 0.140 0.084 0.074 0.065 0.016 0.025 0.019 0.010 0.006 16 0.123 0.093 0.071 0.062 0.052 0.054 0.032 0.012 0.009 0.007 0.005 17 0.108 0.093 0.080 0.069 0.060 0.045 0.026 0.015 0.005 0.003 18 0.095 0.081 0.069 0.059 0.051 0.051 0.044 0.038 0.021 0.012 0.007 0.004 0.002 19 0.083 0.070 0.060 0.043 0.037 0.031 0.017 0.009 0.005 0.003 0.002 20 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.014 0.006 0.007 0.004 0.002 0.001 0.019 0.015 0.013 0.005 0.001 24 0.043 0.035 0.028 0.023 0.013 0.003 0.001 0.001 0.000 0.000 0.000 25 0.038 0.030 0.015 0.024 0.020 0.016 0.010 0.005 0.002 0.000 0.002 0.001 0.001 0.000 0.007 0.001 0.000 30 0.020 0.012 0.009 0.004 0.000 0.000 40 0.005 0.004 0.003 0.002 0.001 0.000 0.000 0.000 0.000 50 0.001 0.000 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 60 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 012 345 67009
Transcribed Image Text:TABLE I Present Value Interest Factor (PVIF) ($1 at i % per period for n periods); PVIF = (1+ i" ; PVo = FV,(PVIF;a) %3D Period, n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 1.000 1.000 1.000 1.000 1.000 0.962 0.925 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.893 1.000 1 0.990 0.980 0.971 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.885 0.842 0.772 0.980 0.961 0.943 0.907 0.890 0.873 0.857 0.826 0.812 0.797 0.783 3 0.971 0.942 0.915 0.889 0.864 0.840 0.792 0.747 0.705 0.816 0.794 0.751 0.731 0.712 0.693 4 0.961 0.659 0.924 0.889 0.863 0.838 0.855 0.823 0.763 0.735 0.681 0.708 0.683 0.636 0.613 0.650 0.596 0.547 0.951 0.906 0.822 0.784 0.713 0.621 0.593 0.567 0.543 0.942 0.888 0.933 0.871 0.790 0.746 0.666 0.630 0.564 0.535 0.507 0.480 7 0.813 0.760 0.711 0.665 0.623 0.583 0.513 0.482 0.452 0.425 0.731 0.703 0.676 8 0.923 0.853 0.789 0.677 0.627 0.592 0.558 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.460 0.422 0.914 0.837 0.766 0.645 0.544 0.424 0.391 0.500 0.463 0.361 0.333 10 0.905 0.820 0.744 0.614 0.508 0.386 0.352 0.322 0.295 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.397 0.388 0.350 0.317 0.287 0.261 0.887 0.319 0.257 0.229 12 0.788 0.701 0.625 0.557 0.497 0.444 0.356 0.286 0.231 0.415 0.388 0.362 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.326 0.290 0.299 0.263 0.258 0.204 0.181 0.577 0.555 0.534 0.340 0.315 0.292 0.270 0.442 0.417 14 0.870 0.758 0.661 0.505 0.232 0.205 15 0.861 0.743 0.642 0.481 0.275 0.239 0.218 0.198 0.180 0.209 0.183 0.160 16 0.853 0.728 0.623 0.458 0.394 0.339 0.252 0.188 0.163 0.141 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.231 0.170 0.146 0.125 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.153 0.130 0.111 0.116 0.104 19 0.828 0.686 0.570 0.475 0.396 0.331 0.276 0.258 0.232 0.215 0.158 0.194 0.164 0.456 0.390 0.138 0.124 0.098 0.087 0.053 20 0.820 0.673 0.554 0.377 0.312 0.178 0.149 0.622 0.610 24 0.788 0.492 0.310 0.247 0.197 0.126 0.102 0.082 0.066 0.116 0.075 25 0.780 0.478 0.375 0.295 0.233 0.184 0.146 0.092 0.074 0.059 0.047 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.057 0.022 0.044 0.015 0.033 0.026 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.011 0.008 0.003 0.001 50 0.002 0.608 0.550 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.005 60 0.305 0.170 0.095 0.054 0.030 0.017 0.010 0.006 0.003 0.002 0.001 Period, n 14% 15% 16% 17% 18% 19% 20% 24% 28% 32% 36% 40% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.735 1.000 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.806 0.781 0.758 0.714 0.510 0.364 0.706 0.593 0.499 0.419 0.352 0.610 0.769 0.675 0.756 0.658 0.743 0.731 0.718 0.694 0.650 0.574 0.435 0.329 0.541 0.641 0.624 0.609 0.579 0.524 0.477 0.398 0.423 0.373 0.592 0.519 0.572 0.552 0.534 0.516 0.437 0.482 0.292 0.260 0.497 0.476 0.456 0.402 0.341 0.291 0.250 0.215 0.186 0.456 0.335 0.133 0.432 0.376 0.410 0.354 0.390 0.370 0.275 0.227 0.189 0.143 0.158 0.400 0.333 0.314 0.296 0.279 0.222 0.178 0.116 0.095 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.179 0.144 0.139 0.108 0.085 0.068 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.108 0.082 0.063 0.048 0.227 0.195 0.168 10 0.270 0.247 0.208 0.191 0.035 0.176 0.148 0.124 0.162 0.116 0.094 0.085 0.062 0.046 0.237 0.034 0.025 11 0.215 0.178 0.162 0.135 0.066 0.047 0.025 12 0.208 0.187 0.152 0.137 0.112 0.076 0.052 0.036 0,018 0.163 0.141 0.123 0.107 13 0.182 0.145 0.130 0.116 0.104 0.093 0.078 0.061 0.040 0.027 0.018 0.013 0.049 0.040 14 0.160 0.125 0.108 0.111 0.099 0.088 0.032 0.021 0.014 0.009 0.095 0.081 15 0.140 0.084 0.074 0.065 0.016 0.025 0.019 0.010 0.006 16 0.123 0.093 0.071 0.062 0.052 0.054 0.032 0.012 0.009 0.007 0.005 17 0.108 0.093 0.080 0.069 0.060 0.045 0.026 0.015 0.005 0.003 18 0.095 0.081 0.069 0.059 0.051 0.051 0.044 0.038 0.021 0.012 0.007 0.004 0.002 19 0.083 0.070 0.060 0.043 0.037 0.031 0.017 0.009 0.005 0.003 0.002 20 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.014 0.006 0.007 0.004 0.002 0.001 0.019 0.015 0.013 0.005 0.001 24 0.043 0.035 0.028 0.023 0.013 0.003 0.001 0.001 0.000 0.000 0.000 25 0.038 0.030 0.015 0.024 0.020 0.016 0.010 0.005 0.002 0.000 0.002 0.001 0.001 0.000 0.007 0.001 0.000 30 0.020 0.012 0.009 0.004 0.000 0.000 40 0.005 0.004 0.003 0.002 0.001 0.000 0.000 0.000 0.000 50 0.001 0.000 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 60 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 012 345 67009
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Konawalski’s Kustom Erdapfel Chips, Inc., is the maker of gourmet German-style potato chips. The company began business three years ago in rural North Carolina and grew quickly as the product became known. Konawalski is now poised for national growth. Some analysts call the firm the next Krispy Kreme. The company pays a dividend of $0.10 per share. Earnings per share are currently $0.50, and analysts expect both earnings and dividends to grow at 20 percent per year for the next five years. The stock price is expected to increase in value by 70 percent over the next three years. If you believe that investors require a 20 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski?

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