(Related to Checkpoint 10.2) (Relative valuation of common stock) Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: the investor's required rate of return is 12 percent, the expected level of earnings at the end of this year (E₁) is $5. the firm follows a policy of retaining 40 percent of its earnings, • the return on equity (ROE) is 13 percent, and • similar shares of stock sell at multiples of 8.824 times earnings per share. Now show that you get the same answer using the discounted dividend model. a. The stock price using the P/E ratio valuation method is $ (Round to the nearest cent.)

(Related to Checkpoint 10.2) (Relative valuation of common stock) Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: the investor's required rate of return is 12 percent, the expected level of earnings at the end of this year (E₁) is $5. the firm follows a policy of retaining 40 percent of its earnings, • the return on equity (ROE) is 13 percent, and • similar shares of stock sell at multiples of 8.824 times earnings per share. Now show that you get the same answer using the discounted dividend model. a. The stock price using the P/E ratio valuation method is $ (Round to the nearest cent.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 19P

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Selected information for Berry Company is as follows: Berrys return on equity rounded to the nearest percentage point is: a. 20%. c. 28%. b. 21%. d. 40%.
(Related to Checkpoint 10.2) (Relative valuation of common stock) Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: ⚫ the investor's required rate of return is 12 percent, the expected level of earnings at the end of this year (E₁) is $7, ⚫ the firm follows a policy of retaining 40 percent of its earnings, ⚫ the return on equity (ROE) is 15 percent, and ⚫ similar shares of stock sell at multiples of 10.000 times earnings per share. Now show that you get the same answer using the discounted dividend model. a. The stock price using the P/E ratio valuation method is $ 70. (Round to the nearest cent.) b. The stock price using the dividend discount model is $ (Round to the nearest cent.)
1. An analyst estimates that a stock will pay a $1 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 14%, what is the value of the stock? A. $34.60. B. $35.52. C. $35.96. Please provide an accurte answer.
(Related to Checkpoint 10.2) (Relative valuation of common stock) Using the PIE ratio approach to valuation, calculate the value of a share of stock under the following conditions: • the investor's required rate of return is 14 percent, • the expected level of earnings at the end of this year (E,) is $5, • the firm follows a policy of retaining 20 percent of its earnings, the return on equity (ROE) is 15 percent, and • similar shares of stock sell at multiples of 7.272 times earnings per share. Now show that you get the same answer using the discounted dividend model. a. The stock price using the P/E ratio valuation method is $. (Round to the nearest cent.)
(Common stock valuation) Assume the following: • the investor's required rate of return is 15 percent, • the expected level of earnings at the end of this year (E, ) is $7, • the retention ratio is 40 percent, • the return on equity (ROE) is 19 percent (that is, it can earn 19 percent on reinvested earnings), and • similar shares of stock sell at multiples of 8.109 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (PIE,). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? a. What is the expected growth rate for dividends? % (Round to two decimal places.)
1. An analyst estimates that a stock will pay a $1 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 14%, what is the value of the stock? A. $34.60. B. $35.52. C. $35.96.
1. If the required rate of return is 5 percent and the stock pays a fixed S5 dividend, its value is • A. $100 • B. $75 • C. S10 • D. $50 2.The P/E ratio is determined by • A. The required rate of return. • B. The expected dividend payout ratio. • C. The expected growth rate of dividends. • D. Choices a and b • E. All of the above
Common stock valuation) Assume the following: • the investor's required rate of return is 12.5 percent, • the expected level of earnings at the end of this year (E1) is $14, • the retention ratio is 45 percent, • the return on equity (ROE) is 15 percent (that is, it can earn 15 percent on reinvested earnings), and • similar shares of stock sell at multiples of 9.565 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (P/E1). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? e. What would happen to the P/E ratio (P/E1) and stock price if the company increased its retention rate to 60 percent (holding all else constant)? What would happen to the P/E ratio (P/E1) and stock price if the company paid out all its earnings in the form of dividends? f. What have you learned about the…
(Common stock valuation) ASsume the following: • the investor's required rate of return is 14 percent, • the expected level of earnings at the end of this year (E,) is $14, • the retention ratio is 30 percent, • the return on equity (ROE) is 16 percent (that is, it can earn 16 percent on reinvested earnings), and • similar shares of stock sell at multiples of 7.609 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (PIE1). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? e. What would happen to the P/E ratio (PIE,) and stock price if the company increased its retention rate to 70 percent (holding all else constant)? What would happen to the P/E ratio (PIE,) and stock price if the company paid out all its earnings in the form of dividends? f. What have you learned about the relationship between the retention rate and the P/E ratios?
(Common stock valuation) Assume the following: Chapter • the investor's required rate of return is 16 percent, • the expected level of earnings at the end of this year (E,) is $9, • the retention ratio is 60 percent, • the return on equity (ROE) is 19 percent (that is, it can earn 19 percent on reinvested earnings), and • similar shares of stock sell at multiples of 8.696 times earnings per share. Chapter Chapter Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (PIE, ). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? Chapter a. What is the expected growth rate for dividends? Chapter 1 % (Round to two decimal places.) Thapter 1 b. What is the price earnings ratio (PIE,)? (Round to three decimal places.) hapter c. What is the stock price using the P/E ratio valuation method? (Round to the nearest cent.) d. What is the stock price using the dividend discount…
Attempts Keep the Highest / 2 4. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 4.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (D) and the discounted value of the dividends expected to be paid 10, 20, and 50 years from now (D10, D20, D50). Assume that the stock's required return (rs) is 5.40%. Note: Carry and round the calculations to four decimal places. Time Period Now End of Year 10 End of Year 20 End of Year 50 Dividend's Expected Future Value Dividend's Expected Present Value Using the blue curve (circle symbols), plot the future value of each of…
A share of stock A is selling at K23.50. A summary of the uncertainty about next year’s holding period return with three possible scenarios: Business Conditions Scenario,s Probability, p End of Year Price High Growth 1 0.35 K35 Normal Growth 2 0.30 K27 No growth 3 0.35 K15 Annual dividends are K4.40, K4 and K4 under the different business conditions High, Normal and No growth, respectively. Required: (i). Calculate the annual holding period returns for each of the three scenarios and the expected HPR and the standard deviation of the HPR. (ii). A financial analyst forecasts the return on the LuSE All share index portfolio over the coming year will be 10 %. The one year T-bill rate is 5 %recent returns of the Index suggest a standard deviation of returns to be 18 %. (iii) What does this information suggest about the degree of risk aversion of the average investor assuming the average portfolio resembles the…