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You are a financial analyst and you have the following information for Dominion Tech Company. Dominion Tech Company has beta of 1.5 and a ROE of 15%. The plowback ratio is 40%. Last twelve month earnings were $3 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 15%, and T-bills currently offer a 5% return.
a. Find the intrinsic value of Dominion stock
b. Compute the Leading P0/E1 and Trailing P0/E0 ratios.
c. Calculate the PVGO?
d. Suppose your research convinces you that Dominion will announce momentarily that it will immediately increase its plow-back ratio to 60%. Find the intrinsic value of the stock. The market is still unaware of this decision. Explain why the value changes.
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