Facebook has just hired some social media influencers to promote its new acquisition, Whats app, which...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Facebook has just hired some social media influencers to promote its new acquisition, Whats app, which they believe will boost their sales and earnings. Wall Street, which had expected the company to grow 6% p.a. in line with the nominal growth rate of the U.S. economy, now believes that Facebook will grow at 12% in the coming year, 10% in the following year, 8% in the year after that, and then return to a 6% annual growth rate thereafter. The company recently reported earnings of $4.75/share. Its payout ratio had previously been 60%, but it plans to lower its payout ratio to 40% on a go-forward basis. You gather the following additional inputs: OFW projected beta: 1.05 Equity risk premium: 8.20% Risk free rate: 1.80% (i) (ii) Based on the estimates provided by Wall Street analysts along with the appropriate dividend discount model, what is the per share value of FB? What is the imputed value per share of this new acquisition, Whats app, to be marketed by these social media influencers? In other words, what is the difference between FBs share price assuming a constant growth rate of 6% from today onward (and a 40% payout ratio) and the price you calculated in part (i) above? Facebook has just hired some social media influencers to promote its new acquisition, Whats app, which they believe will boost their sales and earnings. Wall Street, which had expected the company to grow 6% p.a. in line with the nominal growth rate of the U.S. economy, now believes that Facebook will grow at 12% in the coming year, 10% in the following year, 8% in the year after that, and then return to a 6% annual growth rate thereafter. The company recently reported earnings of $4.75/share. Its payout ratio had previously been 60%, but it plans to lower its payout ratio to 40% on a go-forward basis. You gather the following additional inputs: OFW projected beta: 1.05 Equity risk premium: 8.20% Risk free rate: 1.80% (i) (ii) Based on the estimates provided by Wall Street analysts along with the appropriate dividend discount model, what is the per share value of FB? What is the imputed value per share of this new acquisition, Whats app, to be marketed by these social media influencers? In other words, what is the difference between FBs share price assuming a constant growth rate of 6% from today onward (and a 40% payout ratio) and the price you calculated in part (i) above?
Expert Answer:
Answer rating: 100% (QA)
i Share Price of Facebook Using the Dividend Discount Model DDM Calculate the Terminal Value TV Give... View the full answer
Related Book For
Managing Business Ethics Making Ethical Decisions
ISBN: 9781506388595
1st Edition
Authors: Alfred A. Marcus, Timothy J. Hargrave
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Find the derivative of the function. y = e x-4
-
The following table shows the market shares during the first three months of 2015 for companies in the U.S. personal computer (PC) market, which includes desk-based PCs and mobile PCs, such as...
-
Major League Baseball (MLB) consists of teams that play in the American League and the National League. MLB collects a wide variety of team and player statistics. Some of the statistics often used to...
-
ABC, Inc. had the following partial balance sheet and partial annual income statement: The industry average DSO is 30 (based on a 365-day year). ABC plans to change its credit policy so as to cause...
-
Refer to Problem P22- 47B. Additional data for Beta Batting Company: a. Capital expenditures include $ 40,000 for new manufacturing equipment, to be purchased and paid in the first quarter. b. Cash...
-
Find the change in a disk's angular speed (in rad/s) if its mass and radius are 0.230 kg and 0.180 m, respectively
-
Kai is the president of Zebra Antiques. An employee, Reese Francis, is due a raise. Reeses current benefit analysis is as follows: Compute the benefit analysis assuming: 3 percent increase in pay. ...
-
The covariance of the change in spot exchange rates and the change in futures exchange rates is 0.8250. The variance of the change in futures exchange rates is 0.53. What is the estimated hedge ratio...
-
What is opportunity cost and why do airline managers need to understand it?
-
Given the following supply and demand functions, calculate consumer surplus. P =600 Qd P =300+2QS
-
The price of oil has been on a downward trend for about six months. How do you think this will affect airline ticket prices and how will this be brought about?
-
Suppose the income elasticity of demand for a good is 4. Is this a normal good or an inferior good? If it is a normal good, then is it a luxury or a necessity? Why?
-
Explain the difference between shortage and surplus.
-
As an information technology company, AV Corporate has difficulty managing change due to the dynamic nature of the IT industry. If you were a consultant for this company, what would you recommend?...
-
Suppose that A is an m n matrix with linearly independent columns and the linear system LS(A, b) is consistent. Show that this system has a unique solution.
-
Mayo Elton is the chief ethics officer at Hawthorne Manufacturing. He has established a code of conduct that prohibits stealing supplies and equipment from the factory floor and also imposes strict...
-
You are a plant manager at a manufacturing company. Relationship between your management team and factory workers is generally harmonious. You and the other managers have worked your way up through...
-
You run a die casting facility that produces metal tools used in industry. (Dies are essentially molds that are filled with superhot molten metal to make metal products.) Competition is fierce in...
-
The terminal speed of a Styrofoam ball is 15 m/s. Suppose a Styrofoam ball is shot straight down with an initial speed of 30 m/s. Which velocity graph is correct? Vy (m/s) Vy (m/s) v, (m/s) vy (m/s)...
-
Boxes P and Q are sliding to the right across a frictionless table. The hand His slowing them down. The mass of P is larger than the mass of Q. Rank in order, from largest to smallest, the horizontal...
-
All three 50 kg blocks are at rest. Is the tension in rope 2 greater than, less than, or equal to the tension in rope 1? 50 kg 2 50 kg 2 50 kg
Study smarter with the SolutionInn App