a) Newdeal Inc. follows a policy of distributing 45% of its profits and investing the rest in the operations of the company. The average profitability of its assets is 20% and the current year dividend per face value of 16 is 30%. Compute the intrinsic value of a stock of this company for an investor whose minimum required rate of return is 25%. b) Compute the value of this stock one year later under the same assumptions.
a) Newdeal Inc. follows a policy of distributing 45% of its profits and investing the rest in the operations of the company. The average profitability of its assets is 20% and the current year dividend per face value of 16 is 30%. Compute the intrinsic value of a stock of this company for an investor whose minimum required rate of return is 25%. b) Compute the value of this stock one year later under the same assumptions.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:QUESTION 1.
a) Newdeal Inc. follows a policy of distributing 45% of its profits and investing the rest in the operations of the
company. The average profitability of its assets is 20% and the current year dividend per face value of 16 is
30%. Compute the intrinsic value of a stock of this company for an investor whose minimum required rate of
return is 25%.
b) Compute the value of this stock one year later under the same assumptions.
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