The company trades at $10/share and pays 7% on 10-year bonds; the T-bill rate is 2.5%...

 

 

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The company trades at $10/share and pays 7% on 10-year bonds; the T-bill rate is 2.5% and has a beta of 0.7; the market risk premium is 9.50%; it has 10 million shares outstanding, and the dividend payout policy is 30%. Should I buy the stock? Why? (use Gordon's growth model in your calculations). (10 points) Final answer: stock price / intrinsic value is $ 11.58 and the recommendation is to buy the stock because it is undervalued ($11.58 > $10) Abu Olaim Pharmaceuticals LLC /financial statements in Millions (X*1,000,000) Balance Sheet Assets Cash Income statement Sales C.O.G.S Gross profit Depreciation SG&A Other Operating Expense Operating income Other Income Interest Income E.B.I.T Interest Expense E.B.T Tax Expense Profit/Loss 150 75 75 4 38 2 32 3 1 36 8 27 10 18 marketable securities Accounts Receivable postdated checks Inventory Total Current Assets PP&E Long-Term investments Land Total Long Term Assets Total Assets Liabilities Accounts Payable Short term Debt Accrued long-term debt Total Current Liabilities Long-Term Debt Deferred Taxes Other Long-term Liabilities Total Long-Term Liabilities Total Liabilities Shareholders' Equity Paid in Capital Retained Earnings Total Shareholders' Equity Total Liability and Equity 83 230 30 15 75 433 215 32 22 269 702 30 35 5 70 101 2 150 253 323 350 29 379 702 you should find the following to solve the question RF RM beta CAPM We Wd interest on bonds Tax Rate after tax cost of debt WACC div Div ratio div/share shares outstanding g Stock price? The company trades at $10/share and pays 7% on 10-year bonds; the T-bill rate is 2.5% and has a beta of 0.7; the market risk premium is 9.50%; it has 10 million shares outstanding, and the dividend payout policy is 30%. Should I buy the stock? Why? (use Gordon's growth model in your calculations). (10 points) Final answer: stock price / intrinsic value is $ 11.58 and the recommendation is to buy the stock because it is undervalued ($11.58 > $10) Abu Olaim Pharmaceuticals LLC /financial statements in Millions (X*1,000,000) Balance Sheet Assets Cash Income statement Sales C.O.G.S Gross profit Depreciation SG&A Other Operating Expense Operating income Other Income Interest Income E.B.I.T Interest Expense E.B.T Tax Expense Profit/Loss 150 75 75 4 38 2 32 3 1 36 8 27 10 18 marketable securities Accounts Receivable postdated checks Inventory Total Current Assets PP&E Long-Term investments Land Total Long Term Assets Total Assets Liabilities Accounts Payable Short term Debt Accrued long-term debt Total Current Liabilities Long-Term Debt Deferred Taxes Other Long-term Liabilities Total Long-Term Liabilities Total Liabilities Shareholders' Equity Paid in Capital Retained Earnings Total Shareholders' Equity Total Liability and Equity 83 230 30 15 75 433 215 32 22 269 702 30 35 5 70 101 2 150 253 323 350 29 379 702 you should find the following to solve the question RF RM beta CAPM We Wd interest on bonds Tax Rate after tax cost of debt WACC div Div ratio div/share shares outstanding g Stock price?

Answer rating: 100% (QA)

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