Question
On Oct 24th 2019, Twitter announced its third-quarter earnings results. The company disclosed that advertising problems including products bugs would hurt its growth rate. Upon
On Oct 24th 2019, Twitter announced its third-quarter earnings results. The company disclosed that advertising problems including products bugs would hurt its growth rate. Upon the release, the stock price of Twitter fell by 20%. The risk-free rate was 2% and the market expected return was 10%. Internet industry has a beta of 0.8. Suppose that past year's EPS was known information and the dividend payout policy remained unchanged. Investors assumed that the firm would grow indefinitely at a constant rate. Investors only revised their expectation about future growth rate upon the release of the results. Suppose the growth expectation was 5% before the announcement, what is your best guess of market expected growth rate after the announcement?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started