A company had $21 of sales per share for the year that just ended. You expect the company to grow their sales at 5.75 percent for the next five years. After that, you expect the company to grow 3.25 percent in perpetuity. The company has a 15 percent ROE and you expect that to continue forever. The company's net margins are 5 percent and the cost of equity is 10 percent. Use the free cash flow to equity model to value this stock. Do not round intermediate calculations. Round your answer to the nearest cent.
A company had $21 of sales per share for the year that just ended. You expect the company to grow their sales at 5.75 percent for the next five years. After that, you expect the company to grow 3.25 percent in perpetuity. The company has a 15 percent ROE and you expect that to continue forever. The company's net margins are 5 percent and the cost of equity is 10 percent. Use the free cash flow to equity model to value this stock. Do not round intermediate calculations. Round your answer to the nearest cent.
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 5P
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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