Envision/Imagine a Fortune 500 company that is forecasting earnings per share (EPS) of $2.00 for next year, and is planning to distribute only 25% of these earnings as a dividend payment.

The CFO of the firm has identified some investment (growth) opportunities. These opportunities are expected to produce a return that matches the 12% return on equity (ROE) of the firm. If the company's shareholders require a rate of return of 10%, what should be the current stock price per share?

Hint: growth rate can be estimated by: g = ROE Plowback Ratio

Answer rating: 100% (QA)

Calculating the Current Stock Price per Share We can use the Constant Growt... View the full answer