Tesmar Corp's current earnings per share is $6 and it has a return of equity is 12%.
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Question:
Tesmar Corp's current earnings per share is $6 and it has a return of equity is 12%. The management
plans to indefinitely maintain its plowback ratio to 2/3. An annual dividend was just paid. Assume that
next year's market return is 9% and T-bills offer 6%. If the stock has a beta of 1.50, answer the
following questions:
a. Find the price at which Tesmar should sell? (4 Points)
b. Calculate the earnings multiplier for Tesmar? (4 Points)
c. Calculate PVGO. Is the firm deriving more value from assets in place or growth
opportunities? Based on your analysis, make a recommendation to management to
improve shareholder value. (4 Points)
Related Book For
Corporate Finance Principles and Practice
ISBN: 978-1292103037
7th edition
Authors: Denzil Watson, Antony Head
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