3]
PVGO = value of share - (next year EPS / cost of equity)
value of share = current dividend per share * (1 + growth rate) / (cost of equity - growth rate)
growth rate = ROE * (1 - dividend payout ratio) = 15% * (1 - 40%) = 9%
value of share = $1.6 * (1 + 9%) / (12% - 9%) = $58.13
next year EPS = current year EPS * (1 + growth rate)
current year EPS = current year dividend per share / dividend payout ratio
next year EPS = ($1.6 / 40%) * (1 + 9%) = $4.36
PVGO = value of share - (next year EPS / cost of equity)
PVGO = $58.13 - ($4.36 / 12%)
PVGO = $21.80
This violates the semistrong form efficiency because the price adjustment is not instant Question 3 (20...
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Budgetary Policy and Economic Growth Errol D'Souza The share of capital expenditures in government expenditures has been slipping and the tax reforms have not yet improved the income...