Question
A stock is currently selling for $600 per share. The next year's (t = 1) estimated earnings per share (EPS) of the company is $24.
A stock is currently selling for $600 per share. The next year's (t = 1) estimated earnings per share (EPS) of the company is $24. The required rate of return on the stock is 10%. The company will maintain a dividend payout ratio of 35%. Assume that the stock is fairly valued.
- (1 point) What is the stock's value of assets in place?
- (1 point) What percentage of the stock price is represented by its growth opportunities?
- (1 point) According to the constant growth DDM, what is the implied growth rate of dividends?
- (1 point) The result from Part C implies that the company's ROE is greater than its discount rate. Now, suppose that the company plans to increase its dividend payout ratio. Assuming all else is equal, would you agree with the company's new payout plan? Briefly explain why?
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1 Stocks Value of Assets in Place The value of assets in place can be calculated using the Gordon Growth Model where the stock price is equal to the d...
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Intermediate Accounting
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
10th Edition
324300980, 978-0324300987
