Assume that a company has EPS of R1 and generates a return on equity of 20%....

Transcribed Image Text:

Assume that a company has EPS of R1 and generates a return on equity of 20%. It is currently trading at R15 per share and has a Price to Book ratio of 3. What is the sustainable growth if the company has a payout ratio of 40%? Question 2 A fast growing company paid a dividend this year of R0.50 per share and is expected to grow at 30% for two years. Afterwards, the growth rate will be 9%. If the required rate is 12%, what is this value of this share? Question 3 BMG Inc. is a recently established and fast growing company. BMG has paid no dividends to date and is unlikely to pay any dividends in the near future. BMG will earn R25 million in net cash flow next year. This cash flow is expected to grow at 25% during the next 3 years and then grow at 9% per year indefinitely. BMG has R150 million in debt and 8 000 000 shares outstanding. Calculate the intrinsic value of a BMG share using a 15% discount rate. Question 4 Consider a company that earns R5 per share and pays a RO.50 dividend. The management indicated an expected growth rate of 23%. If the firm earns a 25% return on equity, can the firm grow with internal funds or will it need additional capital? Assume that a company has EPS of R1 and generates a return on equity of 20%. It is currently trading at R15 per share and has a Price to Book ratio of 3. What is the sustainable growth if the company has a payout ratio of 40%? Question 2 A fast growing company paid a dividend this year of R0.50 per share and is expected to grow at 30% for two years. Afterwards, the growth rate will be 9%. If the required rate is 12%, what is this value of this share? Question 3 BMG Inc. is a recently established and fast growing company. BMG has paid no dividends to date and is unlikely to pay any dividends in the near future. BMG will earn R25 million in net cash flow next year. This cash flow is expected to grow at 25% during the next 3 years and then grow at 9% per year indefinitely. BMG has R150 million in debt and 8 000 000 shares outstanding. Calculate the intrinsic value of a BMG share using a 15% discount rate. Question 4 Consider a company that earns R5 per share and pays a RO.50 dividend. The management indicated an expected growth rate of 23%. If the firm earns a 25% return on equity, can the firm grow with internal funds or will it need additional capital?

Answer rating: 100% (QA)

Question 1 The sustainable growth rate can be calculated using the formula Sustainable Growth Rate Return on Equity x 1 Payout Ratio Given that the company has EPS of R1 and generates a return on equi... View the full answer