Calculate the present value of growth opportunities

Assignment Help Financial Management
Reference no: EM132003260

The market consensus is that Analog Electronic Corporation has an ROE = 12%, a beta of 2.10, and plans to maintain indefinitely its traditional plowback ratio of 1/3. This year’s earnings were $3.60 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 13%, and T-bills currently offer a 5% return.

a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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.)

d. Suppose your research convinces you Analog will announce momentarily that it will immediately change its plowback ratio to 2/3. Find the intrinsic value of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Reference no: EM132003260

Questions Cloud

About the discounted payback method is not true : Which one of the following statements about the discounted payback method is NOT true?
Bond yields will have negative impact on equity prices : Do you think the increase in bond yields will have a negative impact on equity prices?
Modify the mix of debt and equity used in the forecasts : That the company is using far too much debt, and that you should modify the mix of debt and equity used in the forecasts?
What is the intrinsic value of share of xyrong stock : The risk-free rate of return is 8%, the expected rate of return on the market portfolio is 18%, What is the intrinsic value of a share of Xyrong stock?
Calculate the present value of growth opportunities : Find the price at which Analog stock should sell. Calculate the present value of growth opportunities.
What is the project cash flow at time zero : What is the project's cash flow at time 0?
Investment to cover the cost of your child college education : What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?
What is the coupon payment for this bond : What is the coupon payment for this bond? Draw the cash flows for the bond on a timeline.
What is the net present value of this project : Strange Manufacturing Company is purchasing a production facility at a cost of $21 million. What is the net present value of this project?

Reviews

Write a Review

Financial Management Questions & Answers

  The standard deviation of those returns in this period

Assume that the returns from an asset are normally distributed. The average annual return for this asset over a specific period was 17.1 percent and the standard deviation of those returns in this period was 43.8 percent. What about triple in value?

  What is the net present value of project

Windflower Farm is considering an investment in a new project, What is the net present value of the project?

  Company reported negative cash flow on operating activity

Company reported negative cash flow on operating activity and positive on financial and investment activities.

  Firms beginning cash balance and ending cash balance

The change between a firm's beginning cash balance and ending cash balance would equal

  What is initial cost of project including flotation costs

Western Wear is considering a project that requires an initial investment of $260,000. The firm maintains a debt-equity ratio of .40 and has a flotation cost of debt of 8 percent and a flotation cost of equity of 10.5 percent. The firm has sufficient..

  Annual discount rate appropriate

What is the present value of $1,500 received for 24 months in arrears, followed by $1,200 received for 36 months in arrears, if the annual discount rate appropriate is 9.25%?

  What is the stocks return for the coming year

The current price of a stock (P_0) is $20 and last year's price (P_-1) was $18.87. The last dividend (D_0) is $2. What is the stock's return for the coming year

  What is appropriate required rate of return against

What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? Please use the capital asset pricing model to estimate the cost of equity. At the date Of the case, the 74-year equity market risk prem..

  Net present value if brisbane replaces its current system

Assuming a discount rate of 6%, what is the net present value if Brisbane replaces its current system?

  Personal experience involving a natural or man-made crisis

As more companies expand internationally, having a global mindset is more important than it has been at any previous point in history. Share with us a personal experience involving a natural or man-made crisis or disaster that interrupted your normal..

  What is your company cost of equity capital

What is (1) your company's cost of equity capital, and (2) unlevered cost of equity capital?

  Process for preparing pro forma income statements

Describe the process for preparing pro forma income statements and balance sheets. How are these statement analyzed to make cogent evaluations?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd