Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 15%, and it will maintain a plowback ratio of 0.40. Its projected earnings are $3 per share. Investors expect a 11% rate of return on the stock.
a. At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Price $ P/E ratio
b. What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
PVGO $
c. What would be the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 20% of its earnings? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
P/E ratio PVGO $
Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 15%, and it will maintain a plowback ratio of 0.40. Its projected earnings are $3 per share. Investors expect a 11% rate of return on the stock.
a. At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
| Price | $ |
| P/E ratio | |
b. What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
PVGO $
c. What would be the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 20% of its earnings? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
| P/E ratio | |
| PVGO | $ |
Related questions
| The market consensus is that Analog Electronic Corporation has an ROE = 9%, has a beta of 1.65, and plans to maintain indefinitely its traditional plowback ratio of 2/3. This year's earnings were $2.20 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 11%, and T-bills currently offer a 6% return. |
| a. | Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| Price | $ |
| b. | Calculate the P/E ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| P/E Ratio | |
| Leading | |
| Trailing | |
| c. | Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) |
| PVGO | $ |
