Catapult Company has a current book value of $35 per share. As the result of an innovative product, the company earned an ROE of 14 percent. An analyst studying Catapult has estimated that the 14 percent ROE will continue for the next three years. At that point, he is uncertain what will happen to ROE, but he does observe that prior to last year, the share price was at a persistent 10 percent premium over book value, and he assumes this will be the case at the end of his three-year forecast. However, management has maintained an average market value over book value of 30 percent. The firm has a dividend payout ratio of 30 percent and the analyst estimates the cost of equity to be 10.2 percent. The intrinsic value per share for Catapult that the analyst will calculate is closest to: A. $49.00 B. $47.00 C. $50.00

Catapult Company has a current book value of $35 per share. As the result of an innovative product, the company earned an ROE of 14 percent. An analyst studying Catapult has estimated that the 14 percent ROE will continue for the next three years. At that point, he is uncertain what will happen to ROE, but he does observe that prior to last year, the share price was at a persistent 10 percent premium over book value, and he assumes this will be the case at the end of his three-year forecast. However, management has maintained an average market value over book value of 30 percent. The firm has a dividend payout ratio of 30 percent and the analyst estimates the cost of equity to be 10.2 percent. The intrinsic value per share for Catapult that the analyst will calculate is closest to: A. $49.00 B. $47.00 C. $50.00

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 25P

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