PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 13, Problem 12PS
Summary Introduction
To discuss: Person X’s opinion to company A and company B.
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Additional Activities
Perform what is being asked in the following:
1. What will you pay today for a stock that is expected to make a P 45.00
dividend in one year if the expected dividend rate is 5% and you require a 12%
return on your investment?
2. XYZ Company's preferred stock is selling for P 60.00 a share. If the required
return is 8%, what will the dividend be two years from now?
3. Your broker is trying to sell you a stock with a current market price of
P 2,160.00 The stock's last dividend was P 53.25, and earnings and
dividends are expected to increase at a constant growth rate of 10%. Is the
stock fairly valued if the return is 13%? Explain why or why not.
Question 6. Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be $5.00 per share. The company plows back 50% of its earnings and if the Chief Financial Officer (CFO) estimates that the company's return on equity (ROE) is 16%. Assuming the plowback ratio and the ROE are expected to remain constant forever:
Suppose that you are confident that 10% is the required rate of return on the stock.
What does the market price of $50.00 per share imply about the market’s estimate of the company’s expected return on equity? (please give a number)
*Make sure to input all percentage answers as numeric values without symbols, and use four decimal places of precision. For example, if the answer is 6%, then enter 0.0600.
K
Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $46.30 per share. She
expects the price of the stock to rise to $47.65 over the next 3 years. During that time she also
expects to receive annual dividends of $6.79 per share.
a. What is the intrinsic worth of this stock, given a required rate of return of 12%?
b. What is its expected return?
BCCCID
a. The intrinsic worth of this stock is $ 50.22. (Round to the nearest cent.)
b. The expected return is %. (Round to one decimal place.)
Chapter 13 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 13 - Market efficiency True or false? The...Ch. 13 - Prob. 2PSCh. 13 - Market efficiency Which (if any) of these...Ch. 13 - Prob. 4PSCh. 13 - Market efficiency How would you respond to the...Ch. 13 - Market efficiency Respond to the following...Ch. 13 - Prob. 7PSCh. 13 - Prob. 8PSCh. 13 - Market efficiency evidence Which of the following...Ch. 13 - Prob. 10PS
Ch. 13 - Prob. 11PSCh. 13 - Prob. 12PSCh. 13 - Market efficiency implications What does the...Ch. 13 - Prob. 14PSCh. 13 - Prob. 15PSCh. 13 - Abnormal returns Here are alphas and betas for...Ch. 13 - Prob. 18PSCh. 13 - Behavioral finance True or false? a. Most managers...Ch. 13 - Prob. 20PSCh. 13 - Prob. 21PSCh. 13 - Prob. 22PS
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