The FI Corporationâs dividends per share are expected to growindefinitely by 8% per year.
a. If this yearâs year-end dividend is $4.00 and the marketcapitalization rate is 10% per year, what must the current stockprice be according to the DDM?
b. If the expected earnings per share are $16.00, what is theimplied value of the ROE on future investment opportunities? (Roundyour answer to 2 decimal places.)
c. How much is the market paying per share for growthopportunities (i.e., for an ROE on future investments that exceedsthe market capitalization rate)? (Round your answer to 2 decimalplaces.)
The FI Corporationâs dividends per share are expected to growindefinitely by 8% per year.
a. If this yearâs year-end dividend is $4.00 and the marketcapitalization rate is 10% per year, what must the current stockprice be according to the DDM?
b. If the expected earnings per share are $16.00, what is theimplied value of the ROE on future investment opportunities? (Roundyour answer to 2 decimal places.)
c. How much is the market paying per share for growthopportunities (i.e., for an ROE on future investments that exceedsthe market capitalization rate)? (Round your answer to 2 decimalplaces.)
Related questions
| The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next 4 years. Its latest EPS was $5.9, all of which was reinvested in the company. The firmâs expected ROE for the next 4 years is 16% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm will payout all of its earnings as dividend and the firmâs ROE on new investments is expected to fall to 11% per year. GGâs market capitalization rate is 15% per year. |
| a. | What is your estimate of GGâs intrinsic value per share? (Omit the "$" sign in your response. Round your answer to 2 decimal places.) |
