Question
An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if
An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase.
The information is as follows: Firm A B C Current earnings $ 1.60 $ 3.50 $ 6.70 Current dividend $ 1.40 $ 4.40 $ 5.90 Expected annual growth rate in 6 % 3 % -3 % dividends and earnings Current market price $ 24 $ 46 $ 37
What is the maximum price that the investor should pay for each stock based on the dividend-growth model?
Round your answers to the nearest cent.
Stock A: $
Stock B: $
Stock C: $
If the investor does buy stock A, what is the implied percentage return?
Round your answer to two decimal places. %
If the appropriate P/E ratio is 17, what is the maximum price the investor should pay for each stock?
Round your answers to the nearest cent.
Stock A: $
Stock B: $
Stock C: $
If the appropriate P/E ratio is 3, what is the maximum price the investor should pay for each stock?
Round your answers to the nearest cent.
Stock A: $
Stock B: $
Stock C: $
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