Security Analysis hw

The next four (4) questions are based on the following data.

Sisters Corp expects to earn $6 per share next year (E, = 6). The firm's return on equity

(ROE) is 15% and its plowback (retention) ratio is 60%. The firm's market capitalization rate (cost of equity) is 10%. Assume the Gordon model for valuation purposes.

25.What is the firm's sustainable growth rate of dividends?

A) 11%

B) 10%

C)6% D) 15%

E) 9%

26.What is the firm's intrinsic value?

A) $340.0

B) $240.0

C) $160.0

D) $600.0

E) $440.0

27. What is the firm's cash-cow value?

A) $50.0

B) $200.0

C) $100.0

D) $60.0

E) $80.0

28.What is the firm's present value of growth opportunities (PVGO)?

A) $140.0

B) $190.0

C) $180.0

D) $25.0

E$60.0

ern 911991.

bOOS & 97

29. Investors want high plowback (retention) ratios

1. for all firms.
2. whenever ROE (return on equity) > k (cost of capital).
3. whenever k (cost of capital) > ROE (return on equity).
4. only when they are in low tax brackets.
5. whenever bank interest rates are high.