Asked Nov 13, 2019

Adobe Systems has come out with a new and improved product.  As a result, the firm projects an ROE of 22.5%, and it will maintain a plowback ratio of .50.  Its projected earnings are $3.75 per share. Investors expect an 18% rate of return on the stock.

What would the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 40% of its earnings?


Expert Answer

Step 1

Calculation of P/E Ratio and Present Value of Growth Opportunities (PVGO):

The P/E Ratio is 6.67 and present value of growth opportunities is $4.17.

Excel Spreadshee...


Image Transcriptionclose

B 1 Earnings per share $3.75 2 ROE 22.50% 3 Expected Return 4 Reinvested Earnings 18% 40% 5 P/E Ratio 6.67 6 PVGO $4.17


Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in



Stock Valuation

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: How do you know to select the correct incoterm?

A: Meaning of incoterm:Incoterm or Inter Commercial Terms are nothing but set of pre-defined rules and ...


Q: When Rachel borrowed $2400, she agreed to repay the loan in two equal payments, to be made 90 days a...

A: Suppose, the equal size payment to be made is P. Time period after which first payment has to be mad...


Q: Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial f...

A: a.)Computation of net cash flows of year 0 to year 3:


Q: #60

A: Calculation of future value of payments:Answer:Future value of payments is $185,360.20; the policy i...


Q: Firm L needs 10 vans. There are two options available: Firm L can buy 10 vans for 120,000 and have a...

A: Computation of cost of leasing:


Q: For the cash flows shown in the diagram, determine the value of x and 2x that will make the future w...

A: Calculation of values of x and 2x:Answer:The values of x and 2x are 10,744.42 and 21,488.84


Q: How much will I need to deposit into an account to have $6,500,000 in 10 years earning 5 % compounde...

A: The principal amount (initial amount of deposit) is computed using the given formula:


Q: You borrow $5000 at 10% per year and will pay off the loan in 3 equal annual payments starting one y...

A: Calculation of Payment at the end of Year 2:The interest payment is $348.94 and principal payment is...


Q: You own a furniture manufacturing company. You are looking to expand into glass furniture and need t...

A: Calculation of ARR:The ARR for Machine 1 is 28.89% and Machine 2 is 32.73%.Excel Spreadsheet: