Your investment adviser has sent you three analyst reports for a young, growing company named Vegas Chips, Incorporated. These reports depict the company as speculative, but each one poses different projections of the company’s future growth rate in earnings and dividends. All three reports show that Vegas Chips earned $1.20 per share in the year just ended. There is consensus that a fair rate of return to investors for this common stock is 14%, and that management expects to consistently earn a 15% return on the book value of equity (ROE = 15%).

Discuss the feature(s) that drive the differing valuations of Vegas Chips. What additional information do you need to garner confidence in the projections of each analyst report?

Answer rating: 100% (QA)

Price of share expected dividend required equity return growth rate w... View the full answer