1.A company earned $6 per share in the year that just ended. The company has no more...
Question:
1.A company earned $6 per share in the year that just ended. The company has no more growth opportunities. The company has a 12 percent return on equity and a 12 percent cost of equity. Do not round intermediate calculations. Round your answers to the nearest cent.
- What is the stock worth today?
$
What if the company was expected to earn $6.40 next year and then never grow again? Assuming that their return on equity and cost of equity didn't change, what would the stock be worth today?
$
2.The current risk-free rate is 3 percent and the market risk premium is 5 percent. You are trying to value ABC company and it has an equity beta of 0.9. The company earned $3.00 per share in the year that just ended. You expect the company's earnings to grow 3 percent per year. The company has an ROE of 10 percent.
What is the value of the stock? Do not round intermediate calculations. Round your answer to the nearest cent.
$
What is the present value of the growth opportunity? Do not round intermediate calculations. Round your answer to the nearest cent.
$
3.A company had $16 of sales per share for the year that just ended. You expect the company to grow their sales at 7 percent for the next five years. After that, you expect the company to grow 4.5 percent in perpetuity. The company has a 14 percent ROE and you expect that to continue forever. The company's net margins are 6 percent and the cost of equity is 11 percent. Use the free cash flow to equity model to value this stock. Do not round intermediate calculations. Round your answer to the nearest cent.
$
Investment Analysis and Portfolio Management
ISBN: 978-1305262997
11th Edition
Authors: Frank K. Reilly, Keith C. Brown, Sanford J. Leeds