3. Suppose Pears, Inc. currently pays a dividend of $1.75 per share. T-bills are paying a 2.30% return and the market is anticipated to earn 10.40% per year. Pears has a beta of 0.75 and retains 55% of their earnings every year. Pears earnings and dividends are expected to grow 10.6% per year for the next three years, before settling at constant 4.2% growth forever after.
a. What is the cost of equity (market capitalization rate) for CB?
b. What is the value of CB shares today?
c. Suppose the stock is currently selling for $45. Should you invest in the stock? â
3. Suppose Pears, Inc. currently pays a dividend of $1.75 per share. T-bills are paying a 2.30% return and the market is anticipated to earn 10.40% per year. Pears has a beta of 0.75 and retains 55% of their earnings every year. Pears earnings and dividends are expected to grow 10.6% per year for the next three years, before settling at constant 4.2% growth forever after.
a. What is the cost of equity (market capitalization rate) for CB?
b. What is the value of CB shares today?
c. Suppose the stock is currently selling for $45. Should you invest in the stock? â
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 | % |
