Question
Scorpio Inc is a manufacturing company that produces medical related devices. Scorpios EBITDA is expected to be $4 million at the end of this year.
Scorpio Inc is a manufacturing company that produces medical related devices. Scorpios EBITDA is expected to be $4 million at the end of this year. Scorpios earnings per share at the end of the year will be $1.5 per share. The companys plowback ratio is 25%. Scorpios return on equity is 22%. The required return on Scorpio according to CAPM is 25%.
(a) What is the stock price of Scorpio according to the constant growth dividend discount model? Click and type your answer.
(b) What is P/E ratio of the company?
(c) What is the PVGO for the company? Explain why the companys PVGO is positive (or negative).
(d) If Scorpio changes its plowback ratio to 16%, what is the P/E ratio of the company and explain the impact of the PVGO under this policy to the companys stock price.
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