J_Burg Pharma has been successful in generating a return on equity of 18% on its investment...

 

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J_Burg Pharma has been successful in generating a return on equity of 18% on its investment projects. Given the long term success of the firm, market players expect a return of 12% on the stock. The firm has decided to maintain a plowback ratio of 30% for the coming year. Earnings for the current year are projected at $4.00. A. the stock should sell at a price of $ [Select] and a P/E ratio of [Select] B. the present value of growth opportunities is $ [Select] C. if J Burg decides to re-invest only 20% of its earnings, the P/E ratio will be [Select) the PVGO will be $ [Select] D. As an equity analyst who closely follows this Pharma company, you would suggest that the Board [Select] its dividend payout ratio. and J_Burg Pharma has been successful in generating a return on equity of 18% on its investment projects. Given the long term success of the firm, market players expect a return of 12% on the stock. The firm has decided to maintain a plowback ratio of 30% for the coming year. Earnings for the current year are projected at $4.00. A. the stock should sell at a price of $ [Select] and a P/E ratio of [Select] B. the present value of growth opportunities is $ [Select] C. if J Burg decides to re-invest only 20% of its earnings, the P/E ratio will be [Select) the PVGO will be $ [Select] D. As an equity analyst who closely follows this Pharma company, you would suggest that the Board [Select] its dividend payout ratio. and

Answer rating: 100% (QA)

ANSWER A To calculate the price of the stock using the dividend discount model we can use the formula Price Dividend Cost of equity Growth rate where ... View the full answer