If a company has a current stock price of $40, an EPS of $3 per share, and the present value of growth opportunities is $25. What is the required rate of return by investors for this stock? 

b) ACME Inc.’s current stock price is $45.75 per share. If 45% of its share price is contributable to the present value of growth opportunity, what is its earnings per share (EPS)? Assume the required rate of return by investors is 10% for ACME Inc’s stock. 

c) ABC Company just paid a dividend of $4.50 per share. The stock beta is 1.25 and the T-bill rate is 2.5%. The average return on the market is 8%. What is the price of the stock if the dividends are expected to grow by 2% per year in the future? 

Answer rating: 100% (QA)

a To calculate the required rate of return by investors for the stock we need to use the Gordon Grow... View the full answer