The Digital Electronic Quotation System ( DEQS ) Corporation pays no cash dividends currently and is not
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Question:
The Digital Electronic Quotation System DEQS Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $ all of which was reinvested in the company. The firms expected ROE for the next five years is per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year the firms ROE on new investments is expected to fall to and the company is expected to start paying out of its earnings in cash dividends, which it will continue to do forever after. DEQSs market capitalization rate is per year.
Required:
What is your estimate of DEQSs intrinsic value per share?
Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?
What do you expect to happen to price in the following year?
What is your estimate of DEQSs intrinsic value per share if you expected DEQS to pay out only of earnings starting in year
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