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Please help solve. The answer for part a already correct. Need help on part b, c, d. Thank you! The Digital Electronic Quotation System (DEQS)
Please help solve. The answer for part a already correct. Need help on part b, c, d. Thank you!
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.) 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.) Price will rise by % per year until year 6. Because there is no dividend the entire return must be in capital gains Price in one year c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.) Price in two years d. What is your estimate of DEQSs intrinsic value per share if you expected DEQS to pay out only 30% of earnings starting in year 6? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Intrinsic valueStep by Step Solution
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