The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $3. The company has a policy of paying out a fraction of 0.5 of its earnings each year in dividends. The rest is retained and invested in projects that earn an ROE of 30%. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro's investors require? (Do not round intermediate calculations. Enter the answer percentage rounded to 2 decimal places.) as Required rate of return b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested, i.e., what is the PVGO? (Do not round intermediate calculations. Enter the answer as a numerical number rounded to 2 decimal places.) PVGO tA
The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $3. The company has a policy of paying out a fraction of 0.5 of its earnings each year in dividends. The rest is retained and invested in projects that earn an ROE of 30%. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro's investors require? (Do not round intermediate calculations. Enter the answer percentage rounded to 2 decimal places.) as Required rate of return b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested, i.e., what is the PVGO? (Do not round intermediate calculations. Enter the answer as a numerical number rounded to 2 decimal places.) PVGO tA
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 6P
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Transcribed Image Text:The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share
in the coming year are expected to be $3. The company has a policy of paying out a
fraction of 0.5 of its earnings each year in dividends. The rest is retained and invested in
projects that earn an ROE of 30%. This situation is expected to continue indefinitely.
a. Assuming the current market price of the stock reflects its intrinsic value as
computed using the constant-growth DDM, what rate of return do Nogro's investors
require? (Do not round intermediate calculations. Enter the answer
percentage rounded to 2 decimal places.)
as
Required rate of
return
b. By how much does its value exceed what it would be if all earnings were paid as
dividends and nothing were reinvested, i.e., what is the PVGO? (Do not round
intermediate calculations. Enter the answer as a numerical number rounded to 2
decimal places.)
PVGO
tA
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