Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year
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Question:
- Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be $5.00 per share. The company plows back 50% of its earnings and if the Chief Financial Officer (CFO) estimates that the company's return on equity (ROE) is 16%. Assuming the plowback ratio and the ROE are expected to remain constant forever:
Suppose that you are confident that 10% is the required rate of return on the stock. What does the market price of $50.00 per share imply about the market’s estimate of the company’s expected return on equity?
Related Book For
Principles of Managerial Finance
ISBN: 978-0134476315
15th edition
Authors: Chad J. Zutter, Scott B. Smart
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