The intrinsic value of share of Xyrong stock is to be determined with the given information. Introduction: When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.

Question

The risk-free rate of return is 6.5%, the expected rate of return on the market portfolio is 13.5%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $8.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18.5% per year on all reinvested earnings forever. Required: What is the intrinsic value of a share of Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on Xyrong stock? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

Answer 1

Question

Chapter 18, Problem 13PS

A

Summary Introduction

To calculate: The intrinsic value of share of Xyrong stock is to be determined with the given information.

Introduction: When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.

B

Summary Introduction

To calculate: The expected one year holding period return of Xyrong stock is to be determined when the market price of share is $100.

Introduction:

When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.

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