Alphabet Inc., formerly Google Inc. recently had a market cap of $852.83 billion, total equity of $192.19 billion, and 693.4 million shares outstanding. At about the same time, the PB of Facebook and eBay Inc. were 6.11 and 8.245, respectively. Assume that we desire a minimum 10% annual return on our investments, and that we believe Alphabet will sell at 6.0 times book value five years from now. What must Alphabet earn (ROE) on average over the next 5 years to make it a worthwhile investment? (Assume that Alphabet pays no dividends.) Do not round until your final answer. Round final answer to one decimal place (ex: 0.2345 =23.5%).

Alphabet Inc., formerly Google Inc. recently had a market cap of $852.83 billion, total equity of $192.19 billion, and 693.4 million shares outstanding. At about the same time, the PB of Facebook and eBay Inc. were 6.11 and 8.245, respectively. Assume that we desire a minimum 10% annual return on our investments, and that we believe Alphabet will sell at 6.0 times book value five years from now. What must Alphabet earn (ROE) on average over the next 5 years to make it a worthwhile investment? (Assume that Alphabet pays no dividends.) Do not round until your final answer. Round final answer to one decimal place (ex: 0.2345 =23.5%).

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 1P: Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1...

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Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?
CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?
Alphabet Inc., formerly Google Inc. recently had a market cap of $531.40 billion, total equity of $127.88 billion, and 687.27 million shares outstanding. At about the same time, the PB of Yahoo Inc. and eBay Inc. were 1.451 and 5.686, respectively. Assume that we desire a minimum 12% annual return on our investments, and that we believe Alphabet will sell at 3.0 times book value five years from now. What must Alphabet earn (ROE) on average over the next 5 years to make it a worthwhile investment? (Assume that Alphabet pays no dividends.) Do not round until your final answer. Round final answer to one decimal place (ex: 0.2345 =23.5%).Answer%
You anticipate that Canuck Industries will make total payouts of $4.675 billion at the end of this year. Assume that all payouts occur annually at the end of the year and that we are at the beginning of the year. Analysts forecast that Canucks payouts will grow at a constant rate in perpetuity. Your company requires a return of 12% on all new investments. Canuck has 1.4609 billion shares outstanding and its shares are currently trading for $40.00. What growth rate have you assumed in estimating Canuck Industries upcoming payouts? (round to the nearest whole percent. No percentage sign needed)
The Dell Corporation has reported the BV of common equity of $10 billion at the end of 2020, with 400 million shares outstanding. The required rate of return is 5%. The company trades in the stock market for $30. calculate the price-to-book ratio.
The Ethereum Imports Company’s EPS in 2011 was $3.00, and in 2006 it was $1.90. The company’s payout ratio is 30%, and the stock is currently valued at $42. Flotation costs for new equity will be 7%. Net income in 2012 is expected to be $15 million. The market-value weights of the firm’s debt and equity are 40% and 60%, respectively.a. Based on the five-year track record, what is Dempere’s EPS growth rate? What will the dividend be in 2012?b. Calculate the firm’s cost of retained earnings and the cost of new common equity.c. Calculate the breakpoint associated with retained earnings.
An analyst is trying to estimate the intrinsic value of the stock of ATR Kim Eng. The analyst estimates that ATR Kim Eng's free cash flow during the next year will be P25 million. The analyst also estimates that the company's free cash flow will increase at a constant rate of 7% a year and that the company's WACC is 10%. ATR Kim Eng has P200 million of long-term debt and preferred stock and 30 million outstanding shares of common stock. What is the estimated per-share price of ATR Kim Eng's common stock? 27.78 21.11 8.33 34.43
An analyst is trying to estimate the intrinsic value of the stock of ATR Kim Eng. The analyst estimates that ATR Kim Eng’s free cash flow during the next year will be P25 million. The analyst also estimates that the company’s free cash flow will increase at a constant rate of 7% a year and that the company’s WACC is 10%. ATR Kim Eng has P200 million of long-term debt and preferred stock and 30 million outstanding shares of common stock. What is the estimated per-share price of ATR Kim Eng’s common stock? Group of answer choices P21.11 P27.78 P34.43 P8.33
Perine, Inc., has balance sheet equity of $5.3 million. At the same time, the income statement shows net income of $763,200. The company paid dividends of $431,208 and has 120,000 shares of stock outstanding. If the benchmark PE ratio is 17, what is the target stock price in one year? Assume the firm will grow at the sustainable growth rate.
Trend-Line Incorporated has been growing at a rate of 7% per year and is expected to continue to do so indefinitely. The next dividend is expected to be $6 per share. If the market expects a 12% rate of return on Trend-Line, at what price must it be selling? If Trend-Line’s earnings per share will be $9 next year, what part of its value is due to assets in place? If Trend-Line’s earnings per share will be $9 next year, what part of its value is due to growth opportunities?