Are the expected future earnings of the firm important in determining a stock’s investment suitability? Discuss how these and other future estimates fit into the stock valuation framework.
Answer to relevant QuestionsCan the growth prospects of a company affect its price-to-earnings multiple? Explain. How about the amount of debt a firm uses? Are there any other variables that affect the level of a firm’s P/E ratio? How would you go about finding the expected return on a stock? Note how such information would be used in the stock selection process. Assume you’ve generated the following information about the stock of Bufford’s Burger Barns: The company’s latest dividends of $4 a share are expected to grow to $4.32 next year, to $4.67 the year after that, and to ...Consolidated Software doesn’t currently pay any dividends but is expected to start doing so in 4 years. That is, Consolidated will go 3 more years without paying dividends and then is expected to pay its first dividend (of ...Last year, InDebt Company paid $75 million of interest expense, and its average rate of interest for the year was 10%. The company’s ROE is 15%, and it pays no dividends. Estimate next year’s interest expense assuming ...
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