Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please answer my wrong parts Return to 7 Problem 18-14 10 points The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and

please answer my wrong partsimage text in transcribedimage text in transcribed

Return to 7 Problem 18-14 10 points The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $15.00, all of which was reinvested in the company. The firm's expected ROE for the next five years is 22% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 17%, and the company is expected to start paying out 50% of its earnings in cash dividends, which it will continue to do forever after. DEQS's market capitalization rate is 24% per year. a. What is your estimate of DEQS's intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. Intrinsic value 48.40 b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Answer is complete but not entirely correct. Price will rise by 22 X % per year until year 6 b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Answer is complete but not entirely correct. Price will rise by 22 % per year until year 6 Because there is no dividend , the entire return must be in capital gains Answer is complete but not entirely correct. Price in one year $ 59.09 X c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.) X Answer is complete but not entirely correct. Price in two years $ 72.04 X Return to 7 Problem 18-14 10 points The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $15.00, all of which was reinvested in the company. The firm's expected ROE for the next five years is 22% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 17%, and the company is expected to start paying out 50% of its earnings in cash dividends, which it will continue to do forever after. DEQS's market capitalization rate is 24% per year. a. What is your estimate of DEQS's intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. Intrinsic value 48.40 b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Answer is complete but not entirely correct. Price will rise by 22 X % per year until year 6 b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Answer is complete but not entirely correct. Price will rise by 22 % per year until year 6 Because there is no dividend , the entire return must be in capital gains Answer is complete but not entirely correct. Price in one year $ 59.09 X c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.) X Answer is complete but not entirely correct. Price in two years $ 72.04 X

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Project Finance In Theory And Practice

Authors: Stefano Gatti

3rd Edition

0128114010, 978-0128114018

More Books

Students also viewed these Finance questions

Question

Describe important components of self-regulated learning.

Answered: 1 week ago

Question

Explain the importance of Human Resource Management

Answered: 1 week ago

Question

Discuss the scope of Human Resource Management

Answered: 1 week ago

Question

Discuss the different types of leadership

Answered: 1 week ago

Question

Write a note on Organisation manuals

Answered: 1 week ago