Question

7. Constant growth rates

One of the most important components of stock valuation is a firm’s estimated growth rate. Financial statements provide the information needed to estimate the growth rate.

Consider this case:

Robert Gillman, an equity research analyst at Gillman Advisors, believes in efficient markets. He has been following the mining industry for the past 10 years and needs to determine the constant growth rate that he should use while valuing Pan Asia Mining Co.

Robert has the following information available:

•	Pan Asia Mining Co.’s stock (Ticker: PAMC) is trading at $16.25.
•	The company’s stock is expected to pay a year-end dividend of $0.78 that is expected to grow at a certain rate.
•	The stock’s expected rate of return is 7.80%.

Based on the information just given, what will be Robert’s forecast of PAMC’s growth rate?

3.00%

2.49%

7.75%

4.50%

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

DE C w ENG 07:56 01-08-2020 70 36 Х AM1372 X AL AM AN AO AP AQ AR AS AT AU 1349 1350 1351 1352 1353 PAN ASIA MINING PO 16.25 1354 1355 1356 1357 1358 1359 D1 0.78 ke 7.80% ke= D1/PO + g 0.0780 = 0.78/16.25 +g 0.0780 = 0.048 + g 0.03 3.00% ANSWER 1360 1361 1362 1363 1364 1365 1366 1367 1368 1369 1370 1371 1372 KE CAPM UTILITY, SHARPE, beta CoNvexity DGM beta VAR port future INDEX WACC HEDGE INTL CAP BUD Sheet11 SANDI ... +