Answered: A firm has a required rate of return…

A firm has a required rate of return (k) of 15 percent and a return on equity (ROE) of 18%. If the plowback ratio is 40% what is the stock's P/E ratio?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 14PROB

See similar textbooks

Related questions

Q: how much is in the account after 12 years? How much of this is interest?

A: When equal payments are made at equal time intervals, it is called annuity. The payments like monthl...

Q: PART C.) The cost of replacing part of a cell phone video chip production line in 6 years is estimat...

A: The future value of a payment is the value of a single payment or series of payment at some point of...

Q: Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm wi...

A: WACC is the weighted average cost of capital . Total capital = $1,708,000 Debt = $750,000 Preferred ...

Q: st won a lottery prize of $1,000,000 collectable in 10 yearly installments of $100,000 starting toda...

A: Value of money grows with the more compounding due to fact that effective interest rate goes on incr...

Q: 3. (Future value of an ordinary annuity) What is the future value of each of the following streams o...

A: a. Calculate the future value of ordinary annuity by using the EXCEL FV function: Working: Thus, t...

Q: Which of the following is the correct calculation of project Delta's IRR?

A: Internal Rate of Return (IRR): It is the rate of return at which a project's net present value becom...

Q: Please refer to your textbook, page 210 (NOTE: if you are using another textbook edition, data may a...

A: "Hi, Thanks for the Question. Since you asked multiple sub parts questions, we will answer first thr...

Q: Find the future value and present value of the annuity due. Principal Rate Mode of Payment Term No. ...

A: “Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts f...

Q: 8 signs of impending financial bankruptcy, according to Ong (Entrep, July 2006) [It requires 8 answe...

A: Financial bankruptcy is a situation where the company is not able to fulfil its financial commitment...

Q: Calculating Present Values Imprudential, Inc., has an unfunded pension liability of $645 million tha...

A: The present value is calculated as per the time value of money concept

Q: Kames Bhd and Vaish Bhd operate their businesses within the same industry, the inherent business ris...

A: Earning Per Share: It is used to estimate company's value and is calculated by dividing net profit w...

Q: The Rock, Starting exactly eight onths from now they will make their first of 14 monthly payments to...

A: Loans are paid by equated monthly payment that carry the payment of principal and payment of the int...

Q: How much money would have to be placed in a sinking fund each year to replace a machine costing $20,...

A: Given: Costing = $20,000 Year = 10 Yield = 9% Annual growth = 5%

Q: Eli wants each of his children to receive $1000000as an inheritance if he dies.this is a part of? a)...

A: Estate planning is that area of planning where the assets of an individual are passed on to other pe...

Q: (Analyzing coverage ratios) (Related to Checkpoint 15.1 on page 502) The income statements for Home ...

A: $ thousands 2016 2015 2014 Net operating income (EBIT) $ 1,17,74,000.00 $ 1,04,69,000.00 $ 9...

Q: In certain cases, experience will indicate the best time to perform certain operations to maintain e...

A: Answer - Part 1 - Calculation of Cost per piece - ( 200 pieces) Particular Amount Piece pro...

Q: Nowadays it is very important to reduce one's carbon "footprint" (how much carbon we produce in our ...

A: IRR is the rate of return at which Net present value of the Investment is zero. If The IRR is great...

Q: Do Ratio Analysis of Allied Food Products. Interpret the answers. (Current ratio, quick ratio, debt ...

Q: Owens & Minor (OMI) stock has an expected return of 14 percent. Its standard deviation is 36 percent...

A: The question is to find an interest return and dirty price of a bond. The dirty price is calculated ...

Q: A 10-year loan is available from a relative at 10% simple interest. The amount borrowed will be $200...

A: First need to use simple interest formula to calculate interest simple interest payable in 10 years....

Q: 4. Sovereign-Tea Company projected to make even monthly cash payments of P150,000 during the year. T...

A: Total annual payments (T) = P 150000 * 12 = P 1800000 Fixed cost (F) = P 250 r = 8%

Q: A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs....

A: Details and inputs under the question: Initial Investment = 20,000 each Required Return = 10% Tax Ra...

Q: Stock A has an expected return of 10% and a standard deviation of 20%. Stock B has an expected retur...

A: Expected return of B = 13% Risk free rate = 5% Market risk premium = 6%

Q: 15–3. (Calculating capital structure weights) (Related to Checkpoint 15.1 on page 502) Winchell Inve...

A: A financial ratio that measures a company's leverage is referred to as a "debt ratio." The debt rati...

Q: Tell whether the following is a characteristic of stocks and bonds. 1. It can be appropriate for ret...

A: Stocks and bonds are the form of capital where the company issues for raising funds for its operatio...

Q: At what annual interest rate must $232,000 be invested so that it will grow to be $452,000 in 14 yea...

A: Present value (PV) = $232000 Future value (FV) = $452000 Period (n) = 14 Years

Q: Before making capital budgeting decisions, finance professionals often generate, review, analyze, se...

A: The difference between the current value of cash inflows and outflow of cash over a period of time i...

Q: 15. A company is considering two mutually exclusive projects. Both require an initial cash outlay of...

A: Question Details and inputs: Initial Investment = 20,000 each Required Return = 10% Tax Rate = 35% S...

Q: According to Modigliani & Miller Theory (M&M), WACC of the firm is not affected by the capital struc...

A: Given, Return on assets 16% Cost of debt is 10% % of debt to capital is 45%.

Q: 1. Ati= 10% per year and a loan amount of $10,000. If N = 20, what are the payments and future value...

A: Loan is a value which is borrowed from external sources like banks and this amount is repaid later i...

Q: 12. Calculating Future Values Your coin collection contains fifty 1952 silver dollars. If your grand...

A: Future Value is the value of an Investment after a certain period of time which is calculated on the...

Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a...

A: Risk-free rate = 8% Expected return on stock fund = 19% Expected return on bond fund = 12% Standar...

Q: 4.2 Calculating Present Values Suppose you have just celebrated your 19th birthday. A rich uncle set...

A: The worth of the fund today can be calculated with the help of present value function

Q: Calculate the yield to maturity (YTM) a 10-year bond of semi-annually paid coupon rate 6% if you pur...

A: Given, Purchase price of the bond is $900. Coupon rate is 6% compounded semi annually

Q: a) How much are you going to pay at the end of 2 years at a simple interest rate of 12% per year? b)...

A: Simple Interest: It is the easiest method of computing interest loans. It is computed by multiplyin...

Q: The Growth Firm forecasts that its cash flows will increase by 5% per year indefinitely and the divi...

Q: West Wind, Inc. has 4,900,000 shares of common stock outstanding with a market value of $90 per shar...

A: Market capitalization = Number of shares outstanding x market value per share = 4,900,00...

Q: A Corporation believes that it can sell long term-bonds with an 8% coupon rate, although the effecti...

A: Corporate bond kind of debt issued by profit-generating organizations. These bonds are risky, unlike...

Q: 0,000 Par Disney bond has a 4% coupon and will mature in 10 years. If its yielding (YTM) 5% when y...

A: Price of bond is the sum of present value of coupon payment plus present value of par value of bond.

Q: what is the PV of his investment if he lives for the next 20 years.

A: Present Worth: It is the present value of the future annual cash flows stream and is calculated by ...

Q: Kuhn Co. is considering a new project that will require an initial investment of $45 million. It has...

Q: YIELD CURVES Figure 5.6 Yield Curves, Mid-February, Every Four Years, 1977-2013 16 14 - 1981 12 1985...

A: Yield curve is a graphical representation of yields or interest rates of different bonds which has s...

Q: Berman V. Parker is planning to borrow P10 Million from NBA Bank, which offers to lend the money at ...

A: we have; Loan Amount is P10 million Time period is 1 year. Rate of interest is 10% To Find: Effecti...

Q: Lauryn’s Doll Co. had EBIT last year of $47 million, which is net of a depreciation expense of $4.7 ...

A: Given, EBIT $47 million Depreciation $4.7 million capital expenditures $7.25 million Net working cap...

Q: Suppose a risk neutral agent has $100,000 today that he wants to save for one year. Compare the fol...

A: Here, Details of Bank A: Offers Fixed Interest Rate of 4.3% per annum Details of Bank B: Offers Basi...

Q: Implication of fdi behaviour when GBP/USD is low.

A: Foreign direct investment can be defined as the type of investment made by a resident individual or ...

Q: PART A.) Decide which of the following machines should be selected (if one of them MUST be selected)...

A: The present value of a project is used to find its profitability by discounting cash flows and them ...

Q: The firm is considering a project which requires a $5,000 investment and is expected to generate exp...

Q: Use the table for the questions below. Consider the following balance sheets: PharmPic D...

A: Total equity of pharm pic =226315 +113158 = 339473 Debt equity ratio of pharm pic = 290000 ÷ 339473...

Q: The prudential oversight of the financial system is clearly needed to prevent financial crises, ther...

A: Introduction : Financial crises refers to the situation in which significant amount of assets of an ...

Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

A firm has a required rate of return (k) of 15 percent and a return on equity (ROE) of 18%. If the plowback ratio is 40% what is the stock's P/E ratio?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?
You are given the following information about a firm. The growth rate equals 8 percent; return of the assets (ROA) is 10 percent; the debt ration is 20 percent; and the stock is selling at $36. What is the return on equity (ROE)?
You forecast the company A’s future earning is going to be $5.34 per share. The current market price is $55. What the market forward PE ratio? The estimated growth rate is 10%, what is the PEG ratio based on your estimate of growth rate? The industry average has a P/E ratio of 14 and growth rate of 12%, what does it mean for A’s stock price?
If a firm has stock price of $52 and a required rate of return of 10% and earnings are expected to be $4 per share next year, then what is the firm’s PVGO?
Consolidated Industries has a required return of 17.5 percent. The return on the market is 9 percent and the risk-free rate of return is 2 percent. What is the beta of this stock?
You forecast to have a ROE of 14%, and dividend payout ratio of 12%. Currently the company has a price of $30 and $7 earnings per share. What is the PEG ratio based on market price?
a firm is expected to earn $8 per share . the pay-out ratio is 60%and it will remain same. if the ROE of the firm is 25% and required rate of return on equity is 13% find the present value of growth
The market capitalization rate on the stock of Aberdeen Wholesale Company is 14%. Its expected ROE is 15%, and its expected EPS is $6. If the firm's plowback ratio is 60%. Calculate its P/E ratio.
Suppose the current risk -free rate of return is 5 percent and the expected market risk premium is 7 percent. Using this information, estimate the cost of retained earnings for a company with a beta coefficient equal to 2.0?
The current risk-free rate of return, rRF, is 4 percent and the market risk premium, RPM, is 8 percent. If the beta coefficient associated with a firm's stock is 1.6, what should be the stock's required rate of return? Round your answer to one decimal place. ´%
The expected rate of return on a market portfolio is 7 percent. The riskless rate of interest is 4 percent. The beta of a company is 1.37. What is the required rate of return on this company's common equity?