FOR = 12% ROE = 15% FIN 3510 ICA #2 Fall 2019 1. A stock will not pay a dividend until 6 years from now. The first dividend is expect to be $3.00, the dividend payout ratio will be 20 percent, and the return on equity is expected to be 15 percent. The company forecasts this to last for 6 years before the return on equity will drop to 10 percent. The required rate of return is 12%. a. What is the current value of the stock? (Hint: Determining the growth rates will help.) growth rate - RGE+ (1-poyout ratio) .15 * 20).1 or 12% Pa 3*(1.2) b. What is the estimated EPS and P/E ratio for this stock? c. Using the payout ratio estimate the P/Es given the growth rates. What do these tell you about the current P/E? 2. A firm has EBIT of $65 million net of 7 million in depreciation. The firm had capital expenditures of 10.25 million and a change in net working capital of 2 million. They have a tax rate of 25%. The firm expects FCF to grow at 3% in perpetuity and the required rate of return is 10%. What is the estimate current value of the firm? FOR = 12% ROE = 15% FIN 3510 ICA #2 Fall 2019 1. A stock will not pay a dividend until 6 years from now. The first dividend is expect to be $3.00, the dividend payout ratio will be 20 percent, and the return on equity is expected to be 15 percent. The company forecasts this to last for 6 years before the return on equity will drop to 10 percent. The required rate of return is 12%. a. What is the current value of the stock? (Hint: Determining the growth rates will help.) growth rate - RGE+ (1-poyout ratio) .15 * 20).1 or 12% Pa 3*(1.2) b. What is the estimated EPS and P/E ratio for this stock? c. Using the payout ratio estimate the P/Es given the growth rates. What do these tell you about the current P/E? 2. A firm has EBIT of $65 million net of 7 million in depreciation. The firm had capital expenditures of 10.25 million and a change in net working capital of 2 million. They have a tax rate of 25%. The firm expects FCF to grow at 3% in perpetuity and the required rate of return is 10%. What is the estimate current value of the firm