Question

The market consensus is that Analog Electronic Corporation has an ROE = 11%, a beta of 1.50, and plans to maintain indefinitely its traditional plowback ratio of 1/5. This year's earnings were $2.50 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 15%, 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 places.) Price b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) P/E Ratio Leading Trailing

Answer 1

1.
=Last earnings*(1+RoE*(plowback))*(1-plowback)/(risk free rate+beta*(market return-risk free rate)-growth rate)
=2.50*(1+11%*1/5)*(1-1/5)/(5%+1.50*(15%-5%)-11%*1/5)
=11.48315

2.
=11.48315/(2.50*(1+11%*1/5))
=4.49438

3.
=11.48315/2.50
=4.59326

4.
=11.48315-2.50*(1+11%*1/5)/(5%+1.50*(15%-5%))
=-1.29185

5.
=2.50*(1+11%*4/5)*(1-4/5)/(5%+1.50*(15%-5%)-11%*4/5)
=4.85714