Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 18, Problem 10PS
A
Summary Introduction
To calculate: The selling price of analog stock as per the given information.
Introduction: The price to earnings ratio or 
ratio is used to determine the relationship between the price of stocks and its earnings.
B
Summary Introduction
To calculate: The P/E ratio as per the given information.
Introduction: The price to earnings ratio or 
ratio is used to determine the relationship between the price of stocks and its earnings.
C
Summary Introduction
To calculate: The
Introduction:
The present value of the growth opportunities can be defined as the present value of the additional cash flow.
The price to earnings ratio or 
ratio is used to determine the relationship between the price of stocks and its earnings.
D
Summary Introduction
To calculate: The intrinsic value of stock is to be determined when plowback ratio reduces to 1\3
Introduction:
The intrinsic value of stock can be called as the anticipated or calculated value of the company which may or may not be same as the current market value. The intrinsic value of the stock also includes the tangible and intangible factors.
The present value of the growth opportunities can be defined as the present value of the additional cash flow.
The price to earnings ratio or 
ratio is used to determine the relationship between the price of stocks and its earnings.
E
Summary Introduction
To calculate: It is to be determined that 
no longer equals to 
and also 
is greater or less than
Introduction:
The intrinsic value of stock can be called as the anticipated or calculated value of the company which may or may not be same as the current market value. The intrinsic value of the stock also includes the tangible and intangible factors.
The present value of the growth opportunities can be defined as the present value of the additional cash flow.
The price to earnings ratio or 
ratio is used to determine the relationship between the price of stocks and its earnings.
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The market consensus is that Analog Electronic Corporation has an ROE = 12%, has a beta of 2.10, and plans to maintain indefinitely its traditional plowback ratio of 1/3. This year's earnings were $3.60 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 13%, and T-bills currently offer a 5% return. a. Find the price at which Analog stock should sell
Calculate the P/E ratio
c. Calculate the present value of growth opportunities.
The market consensus is that Analog Electronic Corporation has an ROE = 9%, a beta of 1.25, and plans to maintain indefinitely its traditional plowback ratio of 2/3. This year’s earnings were $3 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 14%, and T-bills currently offer a 6% return.a. Find the price at which Analog stock should sell.b. Calculate the P/E ratio.c. Calculate the present value of growth opportunities.d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/3. Find the intrinsic value of the stock.e. The market is still unaware of this decision. Explain why V0 no longer equals P0 and why V0 is greater or less than P0.
The market consensus is that Analog Electronic Corporation has an ROE = 9% and a beta of
1.25 and plans to maintain indefinitely its traditional plowback ratio of 2/3. This year's earnings
were $3 per share. The annual dividend was just paid. The consensus estimate of the coming
year's market return is 14%, and T-bills currently offer a 6% return.
a. Find the price at which Analog stock should sell.
b. Calculate the P/E ratio.
c. Calculate the present value of growth opportunities.
d. Suppose your research convinces you Analog will announce momentarily that it will
immediately reduce its plowback ratio to 1/3. Find the intrinsic value of the stock.
e. The market is still unaware of this decision. Explain why Vo no longer equals Po and why Vo
is greater or less than Po.
Chapter 18 Solutions
Investments
Ch. 18 - Prob. 1PSCh. 18 - Prob. 2PSCh. 18 - Prob. 3PSCh. 18 - Prob. 4PSCh. 18 - Prob. 5PSCh. 18 - Prob. 6PSCh. 18 - Prob. 7PSCh. 18 - Prob. 8PSCh. 18 - Prob. 9PSCh. 18 - Prob. 10PS
Ch. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Prob. 13PSCh. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Prob. 16PSCh. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - Prob. 5CPCh. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CP
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- The market consensus is that Analog Electronic Corporation has an ROE = 11% and a beta of 1.45 and plans to maintain indefinitely its traditional plowback ratio of 3/4. This year's earnings were $2.60 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 14%, and T-bills currently offer a 6% return. Required: a. Find the price at which Analog stock should sell. b. Calculate the P/E ratio. c. Calculate the present value of growth opportunities. d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/4. Find the intrinsic value of the stock. Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate the P/E ratio. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Leading Trailing P/E Ratio Required D 30.87 33.41arrow_forwardThe market consensus is that Analog Electronic Corporation has an ROE = 11% and a beta of 1.45 and plans to maintain indefinitely its traditional plowback ratio of 3/4. This year's earnings were $2.60 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 14%, and T-bills currently offer a 6% return. Required: a. Find the price at which Analog stock should sell. b. Calculate the P/E ratio. c. Calculate the present value of growth opportunities. d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/4. Find the intrinsic value of the stock. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Find the price at which Analog stock should sell. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Pricearrow_forwardThe market consensus is that Analog Electronic Corporation has an ROE of 9% and a beta of 1.95. It plans to maintain indefinitely its traditional plowback ratio of 3/5. This year's earnings were $2.6 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 14%, and T-bills currently offer a 6% return. Required: a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price $ 6.77 . b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Leading Trailing P/E ratio 2.47 2.60 c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 2/5. Find the…arrow_forward
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