C. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)? (Round your answer to 2 decimal places.)

EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 10PROB
icon
Related questions
icon
Concept explainers
Topic Video
Question

C. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market capitalization rate)? (Round your answer to 2 decimal places.)

Problem 18-10
The market consensus is that Analog Electronic Corporation has an ROE = 15%, a beta of 1.60, and plans to maintain indefinitely its
traditional plowback ratio of 3/5. This year's earnings were $2.30 per share. The annual dividend was just paid. The consensus
estimate of the coming year's market return is 14%, and T-bills currently offer a 5% return.
a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Price
b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
PIE Ratio
Leading
Trailing
Transcribed Image Text:Problem 18-10 The market consensus is that Analog Electronic Corporation has an ROE = 15%, a beta of 1.60, and plans to maintain indefinitely its traditional plowback ratio of 3/5. This year's earnings were $2.30 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 14%, and T-bills currently offer a 5% return. a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) PIE Ratio Leading Trailing
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps

Blurred answer
Knowledge Booster
Stock Valuation
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
Recommended textbooks for you
EBK CFIN
EBK CFIN
Finance
ISBN:
9781337671743
Author:
BESLEY
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Fundamentals Of Financial Management, Concise Edi…
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781305635937
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781285065137
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781285867977
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning