Question
4. (20pts) OMET is a start-up company that provides services for online meetings with its current earnings at $1 per share. It is expected that
4. (20pts) OMET is a start-up company that provides services for online meetings with its current earnings at $1 per share. It is expected that its earnings will grow at 25% per year in the next three years, during which the company will not pay dividends. Afterwards the company will adopt a plowback ratio of 60% for 10 years and thereafter pay out all its earnings as dividends. The ROE of the company is expected to be 20% from Year 4 to 13 and 10% thereafter.
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(1) (3pts) Suppose the companys = 2. The market risk premium is 8% and the risk-free rate is 1%. What is the required rate of return for OMET?
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(2) (12pts) Calculate the current intrinsic value of OMET shares.
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(3) (5pts) If the COVID-19 pandemic ends much earlier than expected, what is your view on how OMETs intrinsic value would change?
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Accounting Information For Business Decisions
Authors: Billie Cunningham, Loren A. Nikolai, John Bazley, Marie Kavanagh, Geoff Slaughter, Sharelle Simmons
2nd Edition
0170253708, 978-0170253703
