EBK 3N3-EBK: FINANCIAL ANALYSIS WITH MI
8th Edition
ISBN: 9780176914943
Author: Mayes
Publisher: VST
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Bob's Rawhide Company has a dividend payout ratio of 45%. Next year it will earn $0.75 per share and have a return
on equity of 12%. The shareholders' required return is 8%. Calculate the company's growth rate of EPS. Using the
earnings model, what is the value of the stock? Construct a data table that shows how the growth rate and value of the
stock will change if the ROE ranges between 10% and 20%, in 1% increments. Now, using that data, create a scatter
chart to show the relationship between the value of the stock and the ROE. Is the relationship linear? At what point does
the model break down? Using the constant-growth model, what is the value of the stock?
The stock price of Fujita Company is $62. Investors require a return of 10.1 percent on similar stocks. If the company plans to pay a dividend of $4.05 next year, what growth rate is expected for the company's stock price? Can someone explain how to do this with a financial calculator?
Aboudy Corporation's stock price is currently
$22.00 per share. The company has just paid a
dividend of $0.55 per share, and shareholders
anticipate that this dividend will grow in the
future at a rate of 6% per year. Use the Gordon
model to calculate the company's cost of equity
rE.
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