FUNDAMENTALS OF CORPORATE FINANCE
10th Edition
ISBN: 9781260013962
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 7, Problem 38QP
a.
Summary Introduction
To determine: The sustainable growth rate.
a.
Expert Solution
Answer to Problem 38QP
The sustainable growth rateis 6%.
Explanation of Solution
Determine the sustainable growth rate
Therefore, the sustainable growth rateis 6%.
b.
Summary Introduction
To determine: The stock price.
b.
Expert Solution
Answer to Problem 38QP
The stock priceis $35.
Explanation of Solution
Determine the stock price
Therefore, the stock priceis $35.
c.
Summary Introduction
To determine: The
c.
Expert Solution
Answer to Problem 38QP
The present value of growth opportunities is $10.
Explanation of Solution
Determine the present value of growth opportunities
Therefore, the present value of growth opportunities is $10.
d.
Summary Introduction
To determine: The P/E ratio.
d.
Expert Solution
Answer to Problem 38QP
The P/E ratiois 11.67.
Explanation of Solution
Determine the P/E ratio
Therefore, the P/E ratio is 11.67.
e.
Summary Introduction
To determine: The price and P/E ratio if firm paid all earnings as dividends.
e.
Expert Solution
Answer to Problem 38QP
The price is $25 and P/E ratiois 8.33 if firm paid all earnings as dividends.
Explanation of Solution
Determine the price and P/E ratio
The price of if firm paid all earnings as dividends is $25, which is nothing but the stock price using no growth model.
Therefore, the price is $25 and P/E ratio is 8.33 if firm paid all earnings as dividends.
e.
Summary Introduction
To discuss: The relationship between growth opportunities and PE ratio.
e.
Expert Solution
Explanation of Solution
The relationship between growth opportunities and PE ratio is as follows:
If the PE ratio is high, it directly reflects on higher present value of growth opportunities.
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Chapter 7 Solutions
FUNDAMENTALS OF CORPORATE FINANCE
Ch. 7 - Prob. 1QPCh. 7 - Prob. 2QPCh. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Prob. 5QPCh. 7 - Prob. 8QPCh. 7 - Prob. 9QPCh. 7 - Prob. 10QPCh. 7 - Prob. 11QPCh. 7 - Prob. 12QP
Ch. 7 - Prob. 13QPCh. 7 - Prob. 14QPCh. 7 - Prob. 15QPCh. 7 - Prob. 16QPCh. 7 - Prob. 17QPCh. 7 - Prob. 18QPCh. 7 - Prob. 19QPCh. 7 - Prob. 20QPCh. 7 - Prob. 21QPCh. 7 - Prob. 22QPCh. 7 - Prob. 23QPCh. 7 - Prob. 24QPCh. 7 - Prob. 25QPCh. 7 - Prob. 26QPCh. 7 - Prob. 27QPCh. 7 - Prob. 28QPCh. 7 - Prob. 29QPCh. 7 - Prob. 30QPCh. 7 - Prob. 31QPCh. 7 - Prob. 32QPCh. 7 - Prob. 33QPCh. 7 - Prob. 34QPCh. 7 - Prob. 36QPCh. 7 - Prob. 37QPCh. 7 - Prob. 38QPCh. 7 - Prob. 39QPCh. 7 - Prob. 40QPCh. 7 - Prob. 41QPCh. 7 - Prob. 42QPCh. 7 - Prob. 43QPCh. 7 - Prob. 44QPCh. 7 - Prob. 45QPCh. 7 - Prob. 46QPCh. 7 - Prob. 47QPCh. 7 - Prob. 48QPCh. 7 - Prob. 49QPCh. 7 - Implications of Efficient Markets. Long-term...Ch. 7 - Prob. 51QPCh. 7 - Prob. 52QP
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