Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem: Assume that you have a company that makes $4 per share in net income return, that the return on new investments is 30%, that
Problem: Assume that you have a company that makes $4 per share in net income return, that the return on new investments is 30%, that investors require a 15% rate of return on companies of this type, payout ratio of 80%. a) If the returns on new investments is x%, what would be the price of the stock as a function of x ? what would be the corresponding stock prices for the following values of x:5, 25,50,75 ? Assume all the other variables are the same as before b) If the company were to payout y% of their earnings, what would be the price of the stock? what would be the corresponding stock prices for the following values of y:5,25,50, 75 ? Assume all the other variables are the same as before c) If the required return of the company is z%, what would be the price of the stock as a function of z ? what would be the corresponding stock prices for the following values of z:5, 10,15,20 ? Assume all the other variables are the same as before
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