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Company Q’s current return on equity (ROE) is 16%. It pays out 50 percent of earnings as cash dividends (payout ratio = 0.50). Current book value per share is $42. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next two years. After that, competition forces ROE down to 8% and the payout ratio increases to 0.90. The cost of capital is 15%. Question: What is Q’s stock worth per share? (Choose the option closest to your answer) Multiple Choice $33 $41 $36 $44 $39

Company Q’s current return on equity (ROE) is 16%. It pays out 50 percent of earnings as cash dividends (payout ratio = 0.50). Current book value per share is $42. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next two years. After that, competition forces ROE down to 8% and the payout ratio increases to 0.90. The cost of capital is 15%. Question: What is Q’s stock worth per share? (Choose the option closest to your answer) Multiple Choice $33 $41 $36 $44 $39

Essentials Of Investments
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
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**Please solve using Excel and show formulas.**

Company Q’s current return on equity (ROE) is 16%. It pays out 50 percent of earnings as cash dividends (payout ratio = 0.50). Current book value per share is $42. Book value per share will grow as Q reinvests earnings.

Assume that the ROE and payout ratio stay constant for the next two years. After that, competition forces ROE down to 8% and the payout ratio increases to 0.90. The cost of capital is 15%.

Question: What is  Q’s stock worth per share?

(Choose the option closest to your answer)

Multiple Choice
  •  
    $33
  •  
    $41
  •  
    $36
  •  
    $44
  •  
    $39
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