Question

We are examining the stock of Starbooks Inc. The consensus forecast by analysts is that the stock will generate earnings per share of $5 in the next year (EPS1=$5) and will pay $2 dividend per share next year (DPS1=$2). Starbooks maintains an ROE of 20%. The required rate of return on the stock is 16%. We use the Gordon constant growth model in which the constant growth rate is equal to the sustainable growth rate. According to the model, the Present Value of Growth Opportunities (PVGO) of Starbooks (per share) should be _____

Answer 1

Amwa puco - Stock Price - Earnings cost of equity Stock Price = Dividend Required - Growth rate of whern nate liven = Dividend = $2 Reguud rate of utun = 164. krowth = Refention natio x ROE late EPS - DPS x 20 -X100 EPS . 5 2x 100 x 20 5-2 x 100 x 20 _ x 100 x 20 - 12% 2 - $50 Stack Prie = 2 - T6Y-124, Pre Scann sowith 5 CamScanner Tey, - 47 $50 - $31.25 - $31.25 Amwen