Concept explainers
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?
Want to see the full answer?
Check out a sample textbook solutionChapter 4 Solutions
PRIN.OF CORPORATE FINANCE
- Assume 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_forwardAssume the following ratios are constant. Total asset turnover = 2.19 Profit margin = 4.7% = 1.66 Equity multiplier Payout ratio = 44% 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.) Sustainable growth rate %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_forward
- Consider the following regression Pt * - Pt = .07(1.4) + .4*Pt (3.6) + et where Pt * is Shiller’s ex post price of a stock, Pt is the actual price and t-ratios are in brackets. Explain in words and analytically what the dependent variable Pt * - Pt should be equal to under the efficient markets theory. Hence interpret the regression. Does it support the efficient markets theory?arrow_forwardThe dividend yield ratio is: A. 0.12 B. 0.08 C. none of the choice is correct D. 0.40 E. 0.50arrow_forwardWhat does a 65% return on equity ratio suggest?arrow_forward
- The Price-Earning ratio (P/E) of stock A, B, C are 5, 3, 7 respectively. Which one you should buy?arrow_forwardWhich statement is NOT correct? Multiple Choice O O O As the payout ratio goes up, the stock price also goes up. DDM can be used to calculate the terminal value. According to DDM, the discount rate should be greater than the growth rate of dividends. According to DDM formula, there is a one period lag between the times of stock price and the dividend payment. If the payout ratio is fixed, the growth rates of earnings and dividends are same.arrow_forwardRemember the following the 1-factor model or CAPM is defined as re-rf beta * [rm -rf] what is the return on equity (re) if rf = 0.05 rm = 1.88 beta = 1.47arrow_forward
- Give typing answer with explanation and conclusion 27. EFN Define the following: S = Previous year’s sales A = Total assets E = Total equity g = Projected growth in sales PM = Profit margin b = Retention (plowback) ratio Assuming that all debt is constant, show that EFN can be written as EFN = −PM(S)b + [A − PM(S)b] × g Hint: Asset needs will equal A × g. The addition to retained earnings will equal PM(S)b × (1 + g).arrow_forwardEquity Beta = 0.95 Asset Beta = 0.60 What is the difference between the two betas?arrow_forwardcalculate the firms: d) P/E ratio given the market price above e) ROE, f) Debt-equity ratio g) Times Interest Earned Ratio, if interest and tax are 15% and 30% of sales respectively.arrow_forward
- Fundamentals of Financial Management, Concise Edi...FinanceISBN:9781305635937Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning