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. How show that you get the same answer using the discounted dividend model. The stock price using the P/E ratio valuation method is $ 70. (Round to the nearest the dividond discount model is (Round to the nearest ce

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. How show that you get the same answer using the discounted dividend model. The stock price using the P/E ratio valuation method is $ 70. (Round to the nearest the dividond discount model is (Round to the nearest ce

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Description: (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 l

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 2MAD

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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.
K (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.) (0/10)
(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.)
Are bio technology company stock is currently selling for $48.35 per share. The earnings per share are $4.14 and the dividend is $1.80. A-what is the current yield of stock as a percent round your answer to the nearest 10th of a percent? B-what is the price earnings ratio round your answer to the nearest whole number?
(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?
Assume that you are given the following dividends for your company's common stock for Years 1-5. Also assume that after Year 5, dividends will then grow at a constant growth rate of 4.0 percent. Now assume that the investors require a rate of return of 17.0 percent. Given this information. determine the current price for a share of your company's stock. Year 1 2 3 4 5 O $29.75 O $30.58 $25.46 O $27.44 O $23.72 Dividend $2.40 $3.20 $3.90 $4.50 $5.00
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…
A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $56. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case? A Required What is the total rate of return for the stock? B Required What is the dividend yield and percentage capital gain? C Required Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case? (Negative amounts should be indicated by a minus sign. Enter your answers as a whole percent.)
(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…
North Side Corp’s dividends for year 1, year 2, year 3, and expected share price for year 3 are: D1=$1.95, D2=$2.10, D3=$2.18, and P3=$95 respectively. What is the company’s current share price given the required return of 8 percent?
A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $2 per share and sells for $57. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $43. What are the dividend yield and percentage capital gain in this case?
A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $2 per share and sells for $44. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $36. What are the dividend yield and percentage capital gain in this case? Complete this question by entering your answers in the tabs below. Required A Required B Required C Now suppose the year-end stock price after the dividend is paid is $36. What are the dividend yield and percentage capital gain in this case? (Negative amounts should be indicated by a minus sign. Enter your answers as a whole percent.) Dividend yield Capital gains yield