Company XYZ Inc just release its annual report. The company reported the following: Sales $100m;...

 

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Company XYZ Inc just release its annual report. The company reported the following: • Sales $100m; Net Income $20m; Dividends paid=$10m • Number of outstanding common shares 50m The company is in a steady state (i.e. constant long term growth) and the earnings and dividends of the company are expected to grow at 2% in the long run. The stock is currently trading at $5 per share. You also know that the beta of the stock is 1.1, the yield on a 10-year T-note is 2% and the ERP is 4.8%. The stock is currently traded at a P/E ratio of 5. 1. (0.5 points) Estimate the P/E ratio. Assume constant growth. 2. (0.5 points) What is the long term growth implied by the current price? 3. (0.5 points) Estimate the P/Sales ratio. Assume constant growth. 4. (0.5 points) Assuming that the long term growth is estimated correctly, what profit margin would justify the current price? Company XYZ Inc just release its annual report. The company reported the following: • Sales $100m; Net Income $20m; Dividends paid=$10m • Number of outstanding common shares 50m The company is in a steady state (i.e. constant long term growth) and the earnings and dividends of the company are expected to grow at 2% in the long run. The stock is currently trading at $5 per share. You also know that the beta of the stock is 1.1, the yield on a 10-year T-note is 2% and the ERP is 4.8%. The stock is currently traded at a P/E ratio of 5. 1. (0.5 points) Estimate the P/E ratio. Assume constant growth. 2. (0.5 points) What is the long term growth implied by the current price? 3. (0.5 points) Estimate the P/Sales ratio. Assume constant growth. 4. (0.5 points) Assuming that the long term growth is estimated correctly, what profit margin would justify the current price?

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