The market consensus is that Analog Electronic Corporation has an ROE = 15%, a beta of 1.90, and plans to maintain indefinitely its traditional plowback ratio of 1/5. This year’s earnings were $3.20 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 16%, and T-bills currently offer a 5% return.
a. Find the price at which Analog stock should sell.
r = rF + [beta * (Expected Market Return - rF)]
= 5% + [1.9 * (16% - 5%)} = 5% + 20.9% = 25.9%
g = ROE * Plowback Ratio = 15% * (1/5) = 3%
D0 = E0 * (1 - Plowback Ratio) = $3.20 * [1 - (1/5)] = $2.56
P0 = [D0 * (1 + g)] / [r - g]
= [$2.56 * (1 + 0.03)] / [0.259 - 0.03]
= $2.6368 / 0.229 = $11.51
The market consensus is that Analog Electronic Corporation has an ROE = 15%, a beta of...
The market consensus is that Analog Electronic Corporation has an ROE of 11% and a beta of 1.90. It plans to maintain indefinitely its traditional plowback ratio of 3/5. This year's earnings were $2.9 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 16%, and T-bills currently offer a 5% return. a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2...
The market consensus is that Analog Electronics Corporation has an ROE = 15%, a beta of 1.90, and plans to maintain indefinitely its traditional plowback ratio of 1/5. This year’s earnings were $3.20 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 16%, and T-bills currently offer a 5% return. a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal...
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