Calculate the present value of growth opportunities

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Reference no: EM131982623

The market consensus is that Analog Electronic Corporation has an ROE = 11%, a beta of 1.45, and plans to maintain indefinitely its traditional plowback ratio of 3/4. This year’s earnings were $2.60 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 14%, 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 answer to 2 decimal places.)

Leading:

Trailing:

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 change 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=

Reference no: EM131982623

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