The market consensus is that Analog Electronic Corporation has an ROE = 14%, a beta of 1.85, and plans to maintain indefinitely its traditional plowback ratio of 3/4. This year's earnings were $3.10 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 15%, and T-bills currently offer a 6% 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 answers to 2 decimal places.) Leading Trailing P/E Ratio

EBK CONTEMPORARY FINANCIAL MANAGEMENT
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Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 14P
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The market consensus is that Analog Electronic Corporation has an ROE = 14%, a beta of 1.85, and plans to maintain indefinitely its
traditional plowback ratio of 3/4. This year's earnings were $3.10 per share. The annual dividend was just paid. The consensus
estimate of the coming year's market return is 15%, and T-bills currently offer a 6% 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 answers to 2 decimal places.)
Leading
Trailing
P/E Ratio
Transcribed Image Text:The market consensus is that Analog Electronic Corporation has an ROE = 14%, a beta of 1.85, and plans to maintain indefinitely its traditional plowback ratio of 3/4. This year's earnings were $3.10 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 15%, and T-bills currently offer a 6% 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 answers to 2 decimal places.) Leading Trailing P/E Ratio
c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round
intermediate calculations. Round your answer to 2 decimal places.)
PVGO
d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/4.
Find the intrinsic value of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Intrinsic value
Transcribed Image Text:c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) PVGO d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/4. Find the intrinsic value of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Intrinsic value
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