The stock of Nogro Corporation is currently selling for $13 per share. Earnings per share in the coming year are expected to be $2.30. The company has a policy of paying out 25% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 17% rate of return per year. This situation is expected to continue indefinitely.
a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogroâs investors require? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Rate of return %
b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
PVGO $
| The stock of Nogro Corporation is currently selling for $13 per share. Earnings per share in the coming year are expected to be $2.30. The company has a policy of paying out 25% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 17% rate of return per year. This situation is expected to continue indefinitely. |
| a. | Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogroâs investors require? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) | |
| Rate of return | % |
| b. | By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "$" sign in your response.) | |
| PVGO | $ |
Related questions
| 10. The risk-free rate of return is 7.5%, the expected rate of return on the market portfolio is 17%, and the stock of Xyrong Corporation has a beta coefficient of 2.1. Xyrong pays out 25% of its earnings in dividends, and the latest earnings announced were $9.00 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 15% per year on all reinvested earnings forever. |
| a. | What is the intrinsic value of a share of Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| Intrinsic value $ _______?? |
| b. | If the market price of a share is currently $10.00, and you expect the market price to be equal to the intrinsic value 1 year from now, what is your expected 1-year holding-period return on Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
| Expected one-year holding-period return ______% ?? |
| The risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 17%, and the stock of Xyrong Corporation has a beta coefficient of 1.8. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $8.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 25% per year on all reinvested earnings forever. |
| a. | What is the intrinsic value of a share of Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| Intrinsic value | $ |
| b. | If the market price of a share is currently $35.00, and you expect the market price to be equal to the intrinsic value 1 year from now, what is your expected 1-year holding-period return on Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
| Expected one-year holding-period return | % |
