Calculate the present value of growth opportunities

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Reference no: EM13917350

The market consensus is that Analog Electronic Corporation has an ROE = 11% and a beta of 1.90. It plans to maintain indefinitely its traditional plowback ratio of 1/5. This year's earnings were $2.9 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 16%, 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.)

Price $

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

P/E ratio 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 reduce its plowback ratio to 4/5. Find the intrinsic value of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Intrinsic value of the stock $

Reference no: EM13917350

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