Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Our company forecasts to pay a $10 dividend next year, which represents 100% of its earnings. This will provide investors with a 9% expected return. Instead, we decide to plowback 33% of the earnings at the firm current return on equity of 12%. What is the present value of growth opportunities (PVGO)?
A. 21.8
B. 10.5
C. 35.5
D. 55.5
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- What is the cash cow value and the value of its growth opportunities (NPVGO) if a corporation has current earnings of $5 per share and expects to be able to make an investment of 20% of its earnings next year in a new one-time project with an expected return on invested capital of 24%? The discount rate for the firm is 8%. Cash cow value is $62.50 and NPVGO is $1.85 Cash cow value is $20.83 and NPVGO is $2 Cash cow value is $62.50 and NPVGO is $14 Cash cow value is $25.00 and NPVGO is $3 Cash cow value is $25.00 and NPVGO is $3arrow_forwardGive typing answer with explanation and conclusionarrow_forward3. A rapidly growing firm is currently paying a dividend of $2.95. The dividend growth rate is expected to be 8% for the next 3 years, 6% for the following 2 years, and 4% annually thereafter. The expected return on the market is 10%, the risk-free rate is 5% and the firm's Beta is 1.20. MULTIPLE GROWTH RATE SCENARIOS EXERCISE 6 CHAPTER 3 a. Calculate the estimated price (intrinsic value) for a share of this firm's stock. b. Use Goal Seek to determine what the current dividend would need to be to yield an estimated price (intrinsic value) of $70.arrow_forward
- 12. The Growth Firm forecasts that its cash flows will increase by 5% per year indefinitely and the dividends paid to shareholders will increase at the same rate accordingly. It just paid a £4 annual dividend on its shares and the price of the shares is currently £40. What is the required rate of return of the shares? a. 10.00% b. 15.50% c. 9.00% d. 9.50%arrow_forwardSolve thisarrow_forwardWhat would you pay today, in dollars, for a stock that is expected to make a $2 dividend in one year if the expected dividend growth rate is 5% and you require a 12% return on your investment? 28.57 29.33 31.43 43.14 54.30arrow_forward
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