ABC Technologies has been growing quite rapidly in recent years and has a growth potential of 27% from today till the end of year 3. Analysts estimate that the growth rate will decrease to 24% in year 4 and 5 after which it will stabilize at 10% thereafter. If the ROE is expected to remain constant at 30% annually, and the current Earning Per Share is S1.4, calculate the value of this stock. (Assume that shareholders require a 12% rate of return, Round off calculations to 2 decimal spaces).
ABC Technologies has been growing quite rapidly in recent years and has a growth potential of 27% from today till the end of year 3. Analysts estimate that the growth rate will decrease to 24% in year 4 and 5 after which it will stabilize at 10% thereafter. If the ROE is expected to remain constant at 30% annually, and the current Earning Per Share is S1.4, calculate the value of this stock. (Assume that shareholders require a 12% rate of return, Round off calculations to 2 decimal spaces).
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 2P
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Transcribed Image Text:ABC Technologies has been growing quite rapidly in recent years and has a growth potential of 27%
from today till the end of year 3. Analysts estimate that the growth rate will decrease to 24% in year
4 and 5 after which it will stabilize at 10% thereafter. If the ROE is expected to remain constant at
30% annually, and the current Earning Per Share is S1.4, calculate the value of this stock. (Assume
that shareholders require a 12% rate of return, Round off calculations to 2 decimal spaces).
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