Three automotive analysts, George Gross, David Deter, and Nancy Necter, are all analyzing the Biloxi Corporation's...

 

Transcribed Image Text:

Three automotive analysts, George Gross, David Deter, and Nancy Necter, are all analyzing the Biloxi Corporation's common stock. They learned that Mr. Desmond Biloxi, who founded the firm, laid down a no- debt financing policy that the firm adheres to even though Mr. Biloxi passed away years ago. All three analysts agree that (a) Biloxi has a beta that indicates that a capitalization rate of k=12 percent is appropriate for the stock, (b) next year's earnings per share are expected to be Rs.7.50, and (c) Biloxi is expected to retain one-third of its earnings to finance its expansion. However, the three analysts foresee different profit prospects for Biloxi. George forecasts that Biloxi will earn an internal rate of return of 20 percent for the foreseeable future. David's forecast is more dire; he predicts a 10 percent rate of return. Nancy projects a 12 percent rate of return on Biloxi's internal investments. Do the facts and assumptions that the three analysts are using imply significantly different intrinsic values for Biloxi's stock? Explain. Ans. (a) Rs. 93.74; (b) Rs. 62.50; (c) Rs. 57.67 Three automotive analysts, George Gross, David Deter, and Nancy Necter, are all analyzing the Biloxi Corporation's common stock. They learned that Mr. Desmond Biloxi, who founded the firm, laid down a no- debt financing policy that the firm adheres to even though Mr. Biloxi passed away years ago. All three analysts agree that (a) Biloxi has a beta that indicates that a capitalization rate of k=12 percent is appropriate for the stock, (b) next year's earnings per share are expected to be Rs.7.50, and (c) Biloxi is expected to retain one-third of its earnings to finance its expansion. However, the three analysts foresee different profit prospects for Biloxi. George forecasts that Biloxi will earn an internal rate of return of 20 percent for the foreseeable future. David's forecast is more dire; he predicts a 10 percent rate of return. Nancy projects a 12 percent rate of return on Biloxi's internal investments. Do the facts and assumptions that the three analysts are using imply significantly different intrinsic values for Biloxi's stock? Explain. Ans. (a) Rs. 93.74; (b) Rs. 62.50; (c) Rs. 57.67

Answer rating: 100% (QA)

To determine whether the facts and assumptions used by the three analysts imply significantly differ... View the full answer