Question
Question 5 Show all work ABC has come out with a new and improved product. As a result, the firm projects an ROE of 20%,
Question 5 Show all work
ABC has come out with a new and improved product. As a result, the firm projects an ROE of 20%, and it will maintain a plowback ratio of .60 (i.e., its earnings retention rate b = .60). Its earnings this year will be $3.5 per share. Investors expect a 14% rate of return on the stock (i.e., ke = .14).
(a) At what price and P/E ratio would you expect the firm to sell?
(b) What is the present value of growth opportunities (PVGO)?
(c) What would be the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 30% of its earnings?
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The Handbook Of News Analytics In Finance
Authors: Gautam Mitra, Leela Mitra
1st Edition
047066679X, 978-0470666791
