Homework Answers
| Value | Rationale | Workings | |
| ROE | 20% | Given | |
| Dividend payout rate | 40% | Given | |
| Retention rate | 60% | (1-Dividend payout rate) | 1-0.4 = 0.6 |
| Growth rate | 12.00% | Retention rate * ROE | 0.6*0.2 = 0.12 |
| EPS one year later | 3.00 | Given | |
| EPS today | 2.68 | EPS / (1+growth rate) | 3/(1.12) = 2.68 |
| Required rate of return | 17.00% | Given | |
| Value of stock today | 15.76 | EPS today / required rate of return | 2.68 / 0.17 = 15.76 |
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Question 14 2 pts ABC Corp. has an ROE (return on reinvested earnings) of 20% and...
1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout...
1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout ratio of 40%. The next annual earnings are expected to be $3 per share (that is, EPS in year 1 is $3.00). The firm's required return on the stock is 17%. The value of the stock today is $____________. 2. Company A just paid a $1.00 dividend per share and its future dividends are expected to grow at an annual rate of 6% for the...
1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout...
1. ABC Corp. has an ROE (return on reinvested earnings) of 20% and a dividend payout ratio of 40%. The next annual earnings are expected to be $3 per share (that is, EPS in year 1 is $3.00). The firm's required return on the stock is 17%. The value of the stock today is $____________. 2. Company A just paid a $1.00 dividend per share and its future dividends are expected to grow at an annual rate of 6% for the...
14) (6 pts) ABC company current stock price is $50. The most recent Earnings per Share...
14) (6 pts) ABC company current stock price is $50. The most recent Earnings per Share reported was $3.00 (assume this EPS number was just reported yesterday). You expect the company's Earnings to increase by 10% next year and 6% the following year. In two years you are expecting the company's stock will trade at a P/E multiple of 22. Your required rate of return for ABC is 10%. If you expect the company to maintain a 30% dividend payout...
2. Sigma Oy's current return on equity (ROE) is 16%. It pays out one-quarter of earnings...
2. Sigma Oy's current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = 25%). Current book value per share is 35€. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and company increases the payout ratio to 60%. The company does not plan to issue or buyback shares. The cost of capital...
Price-Earnings Ratios A firm has positive ROE but zero growth in earnings. The stock is priced...
Price-Earnings Ratios A firm has positive ROE but zero growth in earnings. The stock is priced at $32.40 and has earnings of $3.00 per share. What is the firm's required return and optimal retention ratio? Multiple Choice 0 10.80%; 0 0 10.80%; 1 0 9.26%; 0 0 9.26%; 1
ABC Corp. has an ROE of 5% and reinvests 40% of its net income. ABC has...
ABC Corp. has an ROE of 5% and reinvests 40% of its net income. ABC has just paid an annual dividend of $0.29. ABC stock has a beta of 1.3. The risk-free rate is 3.6% and the expected return on the market portfolio is 7%. 1) What is the appropriate discount rate? 2) What is the expected growth rate of dividends? 3) What is the intrinsic value (fair price) of ABC stock?
QUESTION 3 The risk-free rate of return is 8.0%, the expected rate of return on the...
QUESTION 3 The risk-free rate of return is 8.0%, the expected rate of return on the market portfolio is 20%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 60% of its earnings in dividends, and the latest earnings announced were $10.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 20% per year on all reinvested earnings forever. Instructions What...
Questions 1-3 Create an excel file and solve the following problems. 1. Firm ABC has a...
Questions 1-3
Create an excel file and solve the following problems. 1. Firm ABC has a current market value of $41 per share with earnings of $3.64. What is the present value of its growth opportunities if the required return is 992 Use excel spinners to change required return to 8%, 10%, 11%, and 12%. Record and report present values for each. 2. Firm X pays a current (annual) dividend of $1 and is expected to grow at 20% for...
Intro ABC Corp. has just paid a dividend of $0.49. ABC has an annual required return...
Intro ABC Corp. has just paid a dividend of $0.49. ABC has an annual required return of 9.52%. Part 1 18 Attempt 1/10 for 10 pts. If dividends are annual and expected to be constant, what is the intrinsic value of ABC stock? 1+ decima Submit 1 - Attempt 1/10 for 10 pts. Part 2 What is ABC's dividend yield? 3+ decima Submit Part 3 18 | Attempt 1/10 for 10 pts. From now on, assume that the dividend of...
Question 15 2 pts Company A just paid a $1.00 dividend per share and its future...
Question 15 2 pts Company A just paid a $1.00 dividend per share and its future dividends are expected to grow at an annual rate of 6% for the foreseeable future. The beta of company A's stock is 1.25, the risk-free rate of return is 4% and the expected return on the market portfolio is 10.4%. The value of the stock today is $. Do not put a $ sign in your answer and round to 2 decimal points. Previous...
14) (6 pts) ABC company current stock price is $50. The most recent Earnings per Share reported was $3.00 (assume this EPS number was just reported yesterday). You expect the company's Earnings to increase by 10% next year and 6% the following year. In two years you are expecting the company's stock will trade at a P/E multiple of 22. Your required rate of return for ABC is 10%. If you expect the company to maintain a 30% dividend payout...
2. Sigma Oy's current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = 25%). Current book value per share is 35€. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and company increases the payout ratio to 60%. The company does not plan to issue or buyback shares. The cost of capital...
Price-Earnings Ratios A firm has positive ROE but zero growth in earnings. The stock is priced at $32.40 and has earnings of $3.00 per share. What is the firm's required return and optimal retention ratio? Multiple Choice 0 10.80%; 0 0 10.80%; 1 0 9.26%; 0 0 9.26%; 1
QUESTION 3 The risk-free rate of return is 8.0%, the expected rate of return on the market portfolio is 20%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 60% of its earnings in dividends, and the latest earnings announced were $10.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 20% per year on all reinvested earnings forever. Instructions What...
Questions 1-3
Create an excel file and solve the following problems. 1. Firm ABC has a current market value of $41 per share with earnings of $3.64. What is the present value of its growth opportunities if the required return is 992 Use excel spinners to change required return to 8%, 10%, 11%, and 12%. Record and report present values for each. 2. Firm X pays a current (annual) dividend of $1 and is expected to grow at 20% for...
Intro ABC Corp. has just paid a dividend of $0.49. ABC has an annual required return of 9.52%. Part 1 18 Attempt 1/10 for 10 pts. If dividends are annual and expected to be constant, what is the intrinsic value of ABC stock? 1+ decima Submit 1 - Attempt 1/10 for 10 pts. Part 2 What is ABC's dividend yield? 3+ decima Submit Part 3 18 | Attempt 1/10 for 10 pts. From now on, assume that the dividend of...
Question 15 2 pts Company A just paid a $1.00 dividend per share and its future dividends are expected to grow at an annual rate of 6% for the foreseeable future. The beta of company A's stock is 1.25, the risk-free rate of return is 4% and the expected return on the market portfolio is 10.4%. The value of the stock today is $. Do not put a $ sign in your answer and round to 2 decimal points. Previous...
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