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You believe the Gordon (constant) growth model is appropriate to value the stock of XYZ company. The company had an EPS of $2 in 2008.
- You believe the Gordon (constant) growth model is appropriate to value the stock of XYZ company. The company had an EPS of $2 in 2008. The earnings in the next year without the additional planned investments are expected to remain at $2. The retention ratio is 0.60. The company is expected to earn a ROE of 14% on its investments and the required rate of return is 11%. Assume that all dividends are paid at the end of the year.
- Calculate the companys growth rate.
- Estimate the value of the companys stock at the beginning of 2009.
- Calculate the present value of growth opportunities.
- If the retention ratio decreases to 0.5, please explain whether the value of the companys stock will increase or decrease without calculation.
- Calculate the companys growth rate.
- Estimate the value of the companys stock at the beginning of 2009.
- Calculate the present value of growth opportunities.
- If the retention ratio decreases to 0.5, please explain whether the value of the companys stock will increase or decrease without calculation.
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
