Question
You are valuing First Bank Parade, a large commercial bank. The bank reported earnings per share of $ 4 last year and paid out dividends
You are valuing First Bank Parade, a large commercial bank. The bank reported earnings per share of $ 4 last year and paid out dividends of $2.40 per share. The earnings are expected to grow 4% a year in perpetuity, and the firm is expected to maintain its existing payout ratio. The firms cost of equity is 9%. a. Estimate the value of equity per share. b. If the stock is trading at $ 42 per share, estimate the implied growth rate (the growth rate that the market is assuming for this stock). c. In the banking industry what are the pros and cons of using P/E vs P/B as a measure of relative attractiveness of a stock d. Fast forwarding to March 2023, and using the graph below, what is very likely to happen to the valuation of the stock of First Bank Parde, why (provide full explanation)
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