Question
Please Help! please read the question before answering. Show all steps. Thank you :) United Healthcare, a health maintenance organization, is expected to have earnngs
Please Help! please read the question before answering. Show all steps. Thank you :)
United Healthcare, a health maintenance organization, is expected to have earnngs growth of 30% for the next five years and 6% after that. The dividend payout ratio will be only 10% during the high growth phase, but will increase to 60% in steady state. The stock has a beta of 1.65 currently , But the beta is expected to drop to 1.10 in steady state. (The Treasury bond rate is 7.25%)
a. Estimate the price-book value ratio for United Healthcare, given the inputs as given.
b. How sensitive is the price-book value ratio to estimates of growth during the high growth period?
c. United Healthcare trades at a price-book value ratio of 7.00. How long would extraordinary growth have to last (at a 30% annual rate) to justify this PBV ratio?
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