Question
Company Qs current return on equity (ROE) is 20%. It pays out 45 percent of earnings as cash dividends (payout ratio = 0.45). Current book
Company Qs current return on equity (ROE) is 20%. It pays out 45 percent of earnings as cash dividends (payout ratio = 0.45). Current book value per share is $56. Book value per share will grow as Q reinvests earnings.
Assume that the ROE and payout ratio stay constant for the next two years. After that, competition forces ROE down to 10.0% and the payout ratio increases to 0.80. The cost of capital is 11.0%. Question: What is Qs stock worth per share?
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Introduction To Finance Markets Investments And Financial Management
Authors: Ronald W. Melicher, Edgar A. Norton
14th Edition
0470561076, 9780470561072
