Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 4, Problem 29PS
Constant-growth DCF formula The constant-growth DCF formula:
is sometimes written as:
where BVPS is book equity value per share, b is the plowback ratio, and ROE is the ratio of earnings per share to BVPS. Use this equation to show how the price-to-book ratio varies as ROE changes. What is price-to-book when ROE = r?
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Students have asked these similar questions
Which of the following formulas is INCORRECT?
O A. Div = EPS, X Dividend Payout Rate
OB. TE= (Div/P)+g
OC. PN(Eg) × Div N+1
O D. earnings growth rate= retention rate x return on new investment
The constant growth dividend discount model (DDM) may be written as
Ⓒfo = Do/(P₁ + 8)
P₁ =D₁/(r₁-8)
P = Do/(r,+8)
fo=D₁/(P₁-8)
OP=D₁/(r₁-8)
Asset Turnover = 0.90Payout Ratio = 0.60 Price Earnings Ratio = 12.0What is the dividend yield ratio?
Chapter 4 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4 - True/false True or false? a. All stocks in an...Ch. 4 - Dividend discount model Respond briefly to the...Ch. 4 - Dividend discount model Company X is expected to...Ch. 4 - Dividend discount model Company Y does not plow...Ch. 4 - Constant-growth DCF model Company Zs earnings and...Ch. 4 - Dividend discount model Company Z-prime is like Z...Ch. 4 - Dividend discount model If company Z (see Problem...Ch. 4 - Prob. 8PSCh. 4 - Prob. 9PSCh. 4 - Free cash flow Under what conditions does r, a...
Ch. 4 - Prob. 11PSCh. 4 - Prob. 12PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 23PSCh. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - DCF and free cash flow Permian Partners (PP)...Ch. 4 - DCF and free cash flow Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing Tree cash flow Phoenix Corp. faltered in...Ch. 4 - Constant-growth DCF formula The constant-growth...Ch. 4 - DCF valuation Portfolio managers are frequently...Ch. 4 - Valuing a business Construct a new version of...
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- consider the following data RF= 4.15% RPM = 5.35% and B= .85 based on the CAPM approach what is the cost of equity from retained earnings?arrow_forwardyou have been provided with the following data D1=$1.27 PO=60 and G=8 constant. What is the cost of equity from retained earnings based on the DCF approach?arrow_forwardIn the Gordon Growth (dividend discount) Model, the growth rate is assumed to be the required return on equity. a. proportional to O b. Blank O c. equal to O d. greater than O e. less thanarrow_forward
- Use the DuPont system and the following data to find return on equity. (Do not roun intermediate calculations. Round your answer to 1 decimal place.) Leverage ratio Total asset turnover Net profit margin Dividend payout ratio Return on equity 2.9 2.7 6.2 % 33.2 % %arrow_forwardToday's dividend yield for standard supply is computed by utilizing the formula C = A/S where A is the most recent annual dividend (in dollars) and S is the current share expense (in dollars). Encounter the function C's domain.arrow_forwardAssume the following ratios are constant. Total asset turnover Profit margin Equity multiplier Payout ration 2.29 Sustainable growth rate 5.7% 1.76 36% What is the sustainable growth rate? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.arrow_forward
- So if the Return = (Total Dividend + change in market price ) / purchase Price, then why is the annual return not calculated that way??arrow_forwardAssume the following ratios are constant. Total asset turnover = 2.16 Profit margin = 4.4 % Equity multiplier = 1.63 Payout ratio = 41 % What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forwardWhat does a 65% return on equity ratio suggest?arrow_forward
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