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You are considering to invest in Stock A and decide to use Constant Perpetual Growth Model for the evaluation of this stock. You obtained the following information related to the stock and market: Stock A Latest dividend per share paid: $2.5 Earnings per share: $4.0 Equity per share: $16 Asset beta: 1.4 i. ii. iii. Debt-to-equity ratio: 40% Tax rate: 20% Existing share price of common stock: $50 (a) Compute the following: Sustainable growth rate%. Appropriate discount rate. Justified value per share. Market Risk-free rate: 3% Market risk premium: 7% (b) Should you buy Stock A with existing price? Briefly explain. (c) Identify any THREE weaknesses for using constant perpetual growth model to evaluate stock price. You are considering to invest in Stock A and decide to use Constant Perpetual Growth Model for the evaluation of this stock. You obtained the following information related to the stock and market: Stock A Latest dividend per share paid: $2.5 Earnings per share: $4.0 Equity per share: $16 Asset beta: 1.4 i. ii. iii. Debt-to-equity ratio: 40% Tax rate: 20% Existing share price of common stock: $50 (a) Compute the following: Sustainable growth rate%. Appropriate discount rate. Justified value per share. Market Risk-free rate: 3% Market risk premium: 7% (b) Should you buy Stock A with existing price? Briefly explain. (c) Identify any THREE weaknesses for using constant perpetual growth model to evaluate stock price.
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Answer rating: 100% (QA)
Answer a Compute the following i Sustainable growth rate The sustainable growth rate is the maximum rate of growth that a company can sustain without ... View the full answer
Related Book For
Elementary Statistics
ISBN: 978-0538733502
11th edition
Authors: Robert R. Johnson, Patricia J. Kuby
Posted Date:
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