You are a financial analyst at Bank of America and you have collected following information for Lotus Tech Company. The company has beta of 1.25 and a ROE of 20%. The dividend payout ratio is 50%. Last twelve month earnings were $4 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 13%, and T-bills currently offer a 5% return.

1a. What is the intrinsic value of the stock?
1b. What is PVGO?
1c. Suppose your research convinces you that company will announce momentarily that it will immediately change its dividend payout ratio to 40%. Find the intrinsic value of the stock.

Answer rating: 100% (QA)

Part A Step 1 Required Rate of Return Re Rf Rm Rfbeta i Here Rf Risk free rate of return Rm Market r... View the full answer