Question
Suppose the actual required rate of return for XYZ is 12%. Consider the following information below: XYZ Company Information Current P/E Ratio 7.05 Shares Outstanding:
Suppose the actual required rate of return for XYZ is 12%. Consider the following information below:
| XYZ Company Information | |
| Current P/E Ratio | 7.05 |
| Shares Outstanding: | 25 million |
| Sales: | $400 Million |
| Annual Dividend (just paid): | $2.50 |
| Expected dividend growth rate: | 1% |
- Suppose XYZ just announced EPS of $4. Should you buy the stock if its current prevailing stock price is $25? Why or why not?
- Would analysis utilizing the Gordon Growth Model suggest that you should buy the stock? Why or why not?
- Suppose XYZs expected dividend growth rate was actually 12% instead of 1%. Describe (all ways discussed in class) how you might estimate XYZs value?
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Numerical Methods In Finance
Authors: René Carmona, Pierre Del Moral, Peng Hu, Nadia Oudjane
2012th Edition
3642257453, 978-3642257452
