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Attempts: 0 Keep the Highest: 0/3 1. Problem 8-02 eBook Problem 8-02 The Clipper Sailboat Company is expected to earn $3 per
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Answer #1

a.

Growth Rate = (1 - b)ROE

0.04 + (1 - b)0.18

b = 77.78%

D1 = 3(0.7778) = $2.33

Stock Price = D1/(r - g)

Stock Price = 2.33/(0.16 - 0.04)

Stock Price = $19.42

b.

PVGO = Stock Price - E1/Cost of Equity

PVGO = 19.42 - 3/0.16

PVGO = $0.67

c.

Growth Rate = 3%

Stock Price = 2,33/(0.16 - 0.03) = $17.92

PE Ratio = 17.92/3 = 5.97

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