Envision/Imagine a Fortune 500 company that is forecasting earnings per share (EPS) of $2.00 for next year,
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Question:
Envision/Imagine a Fortune 500 company that is forecasting earnings per share (EPS) of $2.00 for next year, and is planning to distribute only 25% of these earnings as a dividend payment.
The CFO of the firm has identified some investment (growth) opportunities. These opportunities are expected to produce a return that matches the 12% return on equity (ROE) of the firm. If the company's shareholders require a rate of return of 10%, what should be the current stock price per share?
Hint: growth rate can be estimated by: g = ROE Plowback Ratio
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
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