Analysts believe that Manufactured Earnings is a “darling” of Wall Street analysts. Its current market price is $27 per share, and its book value is $11 per share. Analysts forecast that the firm’s book value will grow by 12.5 percent per year indefinitely, and the cost of equity is 17percent. Given these facts, what is the market’s expectation of the firm’s long-term average ROE?

Analysts believe that Manufactured Earnings is a “darling” of Wall Street analysts. Its current market price is $27 per share, and its book value is $11 per share. Analysts forecast that the firm’s book value will grow by 12.5 percent per year indefinitely, and the cost of equity is 17percent. Given these facts, what is the market’s expectation of the firm’s long-term average ROE?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 23P

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