Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- You forecast the company RIO will have a sustainable ROE of 15% in the future, similar to the industry average of 15%. The company has a dividend payout ratio of 50% versus industry average of 50%. The company had less debt and operation leverage compare to industry, as a result , RIO has a beta of 1.8 versus the industry average of 2. Based on these information, should the company RIO have a higher or lower PE ratio than the industry average ? Given a risk free rate of 2% and market risk premium of 8%, what is RIO’s “intrinsic” forward PE ratio based on formula?arrow_forwardNeed answerarrow_forwardGive typing answer with explanation and conclusion 1. If the value of sustainable investing is $171.1 and the discount rate is 8% while the value of non-sustainable investing is $15.7 and the company has a 28.7% probability of being sustainable. What is the expected value today of the company given a 18 year horizon? (Answer to 2 decimal places in $).arrow_forward
- Premier Corporation has an ROE of 12 percent and a payout ratio of 20 percent. What is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Sustainable growth rate %arrow_forwardFrasier Cabinets wants to maintain a growth rate of 5 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of 0.55, a total asset turnover ratio of 1.30, and a profit margin of 9.0 percent. What must the dividend payout ratio be? HINT: Determine if the target growth rate is IGR/SGR. Next, use the formula to determine how much money (%) the firm can afford to payout to stockholders. You will also want to review the DuPont identity. Multiple Choice 26.26 percent 38.87 percent 49.29 percent 6113 percent 73,74 percentarrow_forwardThe ROA of your firm is 5%. The firm also has a debt-asset ratio of 70%. If your firm reinvests 100% of its earnings, at what rate can your assets grow without having to change your capital structure? Further, at what rate can your assets grow without having to raise capital externally? I know the formula for sustainable growth is ROE x b / 1 - ROE x b Internal growth ROA x 1 - b / 1 - (ROA x 1- b) But I do not know how to get the information with what is provided. I think I'm missing a formula to go from ROA (which is the 5% provided) to ROE. Can you show me how to solve this problem? Thank you in advance for your help.arrow_forward
- If Company A has a PE ratio of 20 and Company B has a PE ratio of 80, investors expect Company A to grow more in the future than Company B. True Falsearrow_forwardLoreto Inc. has the following financial ratios: asset turnover = 2.40; net profit margin (i.e., net income/sales) = 5%; payout ratio = 30%; equity/assets = 0.40. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate?arrow_forwardA firm wants a sustainable growth rate of 2.73 percent while maintaining a dividend payout ratio of 39 percent and a profit margin of 6 percent. The firm has a capital intensity ratio of 2. What is the debt-equity ratio that is required to achieve the firm's desired rate of growth?arrow_forward
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