The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5.90, all of which was reinvested in the company. The firm’s expected ROE for the next four years is 16% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm’s ROE on new investments is expected to fall to 15% per year. GG’s market capitalization rate is 15% per year. a. What is your estimate of GG’s intrinsic value per share? (Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? Price should rise/fall by ___% over the next year

The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5.90, all of which was reinvested in the company. The firm’s expected ROE for the next four years is 16% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm’s ROE on new investments is expected to fall to 15% per year. GG’s market capitalization rate is 15% per year. a. What is your estimate of GG’s intrinsic value per share? (Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? Price should rise/fall by ___% over the next year

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5.90, all of which was reinvested in the company. The firm’s expected ROE for the next four years is 16% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm’s ROE on new investments is expected to fall to 15% per year. GG’s market capitalization rate is 15% per year. a. What is your estimate of GG’s intrinsic value per share? (Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? Price should _____ at a rate of ______% over the next year.
The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5, all of which was reinvested in the company. The firm’s expected ROE for the next four years is 20% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm’s ROE on new investments is expected to fall to 15% per year. GG’s market capitalization rate is 15% per year.a. What is your estimate of GG’s intrinsic value per share?b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?
MetaAluminum Valley Financial Group is a financial services company that has been struggling this year. You believe that it will suspend its upcoming dividend, and will thus not pay a dividend to shareholders at the end of the year (i.e., one year from now). After next year (beginning in year two) you believe it will resume paying its dividend, and will be able to pay out a $5.00 dividend in perpetuity. If the required return for this stock is 11%, what should be the price of this stock? A. $36.89 B. $40.95 C. $45.45 D. $50.00 E. $56
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