A Growth and Value A firm has projected earnings of 6 per sh

A.

Growth and Value A firm has projected earnings of $6 per share for next year and has a 30% dividend payout ratio. The firm\'s required return is 13%. The firm\'s ROE is 14%. What is the intrinsic value of the stock?

$56.25

$54.33

$50.77

$49.65

B.

Value of Growth Opportunities A firm has projected annual earnings per share of $4.00 and a dividend payout ratio of 60%. The firm\'s required return is 11% and dividends and earnings are expected to grow at 3% per year indefinitely. For this firm the present value of its growth opportunities is ________.

$66.36

$69.65

$53.63

$12.73

Growth and Value A firm has projected earnings of $6 per share for next year and has a 30% dividend payout ratio. The firm\'s required return is 13%. The firm\'s ROE is 14%. What is the intrinsic value of the stock?

Solution

A) Po = D1/k-g EPS $6 Dividend = 6*0.30 1.8 g = 0.14*(1-0.30) 0.098 P0 = 1.80/(0.13-0.098) 56.25 B) EPS = $4 Dividend payout ratio = 0.60 Required return = 11% Dividends and earnings are expected to grow at 3% Present value of growth opportunities = ? Dividend = 4*0.60 2.4 P0 = 2.4/(0.11-0.03) 30 P0 = EPS/required return + PVGO 30 = 4/0.11 + PVGO 30 - 36.36 = PVGO PVGO = -$6.36