Explain how much is the market paying per share

Assignment Help Macroeconomics
Reference no: EM1334819

Intrinsic value of HP stock

1. The dividends of Charles Schwab Co. are expected to grow indefinitely by 5% per year.
a. If this year's year-end dividend is \$8 and the firm's required rate of return is 10% per year, what must the current stock price be according to the DDM?
b. If the expected earnings per share are \$12, what is the implied value of the ROE on future investment opportunities?
c. How much is the market paying per share for growth opportunities (i.e. for an ROE in future investments that exceeds the required rate of return securities of this risk class?

2. The risk-free rate of return is 8%, the expected return on the market portfolio is 15%, and the stock of HP has a beta coefficient of 1.2. HP pays out 40% of its earnings in dividends, and the latest earnings announced were \$10 per share. Dividends were just paid and are expected to be paid annually. You expect that HP will earn an ROE of 20% on all reinvested earnings forever.
a. What is the intrinsic value of HP stock?
b. If the market price of a share of HP is currently \$100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected one-year holding period return on HP stock?

Questions Cloud

 Elucidate why do you think us investors in mexico : Elucidate why do you think U.S. investors do not try to capitalize on the high interest rates in Mexico. Explaining the community policing : Need information on the evolution of community policing and how it may assist in crime detection. Find out and display the total owed for all taxpayers : A taxpayer's federal tax due is calculated as follow. First, the taxpayer gets a dependency exemption deduction of \$2,000 for each child. So, if a taxpayer has two children, he or she would get a dependency exemption deduction of \$4,000. A taxpaye.. Identify the primary activities to create value for customer : Identify the primary activities to create value for customers Explain how much is the market paying per share : Explain how much is the market paying per share for growth opportunities. Exzplain what is your expected one-year holding period return on HP stock. What is constrained resource : Product A has a unit contribution margin of \$16 and takes two machine hours to make and Product B has a unit contribution margin of \$30 and takes three machine hours to make. Identifying important requirements to make decision : Identify the most important requirements for Grace to make her decision. Prepare a memo proposing alternative ways : Prepare a memo proposing alternative ways to recognize employees for their contributions and to reward them in a nonmonetary way that would have value to the employees. about 800 words Elucidate classical economists believed in self-correcting : Elucidate Classical economists believed in the self-correcting nature of the economic system. They believed that the major adjustment.

Write a Review

Elucidate how does fiscal policy impact your organization

Elucidate how does the fiscal policy impact your organization or a selected organization with which you are familiar. Provide two scenarios to show the impact.

Pricing elasticity and price strategy of demand

What is the hypothesized elasticity of demand for one product/service that is produced by the company (or a product/company you are familiar with)?

Elucidate how an increase in your nominal income

Elucidate how an increase in your nominal income and a decrease in your real income might occur simultaneously.

Inflation by definition real wages have factored inflation

It cannot be as the inflation by definition real wages have factored inflation in.

Predicted that consumption also gdp would increase

Economic forecasters predicted that consumption also GDP would increase because of higher refunds on income taxes.

Elucidate how your policy would help

Elucidate how your policy would help increase aggregate demand.

Suppose the elasticity of us exports is very low

Suppose the elasticity of U.S. exports with respect to the real exchange rate is very low

Computation of real gdp economic growth

Given table of data comprising real GDP and its components over a number of years, compute compound annual percentage changes in real GDP (economic growth) and compute the shares in real GDP of consumption.

Real wage and rental rate in labor abundant

According to the Heckscher-Ohlin theorem, is Russia capital abundant or labor abundant? Briefly explain. What is the impact of opening trade on the real wage in Russia? Briefly explain.

Compute the elasticity of demand in going

Compute the elasticity of demand in going from 2 unit to 3 units. Is the demand elastic or inelastic in this range.

Import tariff and negotiating a ver

Suppose the domestic appliances industry faces severe foreign competition, and asks you to prepare a position paper its lobbyist.

At level of inflation explain how long does it take

At level of inflation explain how long does it take for the price level to double.