FUNDAMENTALS OF CORP.FIN.(LL)-W/CONNECT
10th Edition
ISBN: 9781260848670
Author: BREALEY
Publisher: 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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Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months later, he sold them for $9.95 per share. He uses an online
broker that charges him $10.00 per trade. What was Jeff's annualized HPR on this investment?
Jeff's annualized HPR on this investment is %. (Round to the nearest whole percent.)
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do not answer this question if data is not clear or image is blurr.
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Chapter 7 Solutions
FUNDAMENTALS OF CORP.FIN.(LL)-W/CONNECT
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
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