The stock price of Nozama Inc. cannot be found online. According to forecasts, it will pay dividends that grow constantly. Similar stocks expect returns of 27.10%. According to Barren Wuffet, the stock will pay 20% of its next EPS; which are projected at $2.50 on a Net Income of $25,000,000. The Common Stock balance is $105,600,740.
Please provide full calculations, preferably in Excel.
a. projected amount of Nozama Inc’s ROE=Net Income of $25,000,000/Common Stock balance is $105,600,740. | ||||||||||||||||
ROE=23.67% | ||||||||||||||||
c. What is the Plowback Ratio of Nozama Inc.? | ||||||||||||||||
the firm is paying a 20% dividend, hence it is retaining 80% | ||||||||||||||||
Plowback ratio is 80% or 0.8 | ||||||||||||||||
b. Nozama Inc’s Constant Growth Rate=ROE*plowback ratio =23.67%*0.8=18.94% | ||||||||||||||||
the growth rate is 18.64% | ||||||||||||||||
d. max price you should be willing to pay for the Nozama Inc. stock=expected dividend/(Growth expected return) | ||||||||||||||||
2.5*20%/(27.1%-18.94%) | ||||||||||||||||
$6.13 | ||||||||||||||||
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