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(Relative valuation of common stock). Using P/E ratio approach to valuation calculate the value of a share of stock under the following conditions. . The investor require rate of return is 13 percent, . the expected level of earnings at the end of this year( E1) is $ 4 . the firm follow a policy of retaining 40 percent of its earnings, .the return on equity ( ROE) is 14 percent and . similar shares of stock sell at multiple of 8.108 times earnings per share Now show that you get same answer using the discounted dividends model .
a) The stock price using the P/E ratio valuation method is…… ( around to nearest cent)
b) The stock price using the dividends discount model is ……… ( around to nearest cent)
If the appropriate discount rate is 12% and the tax rate is 40%, which copier should be selected? Why? Be sure to quantify your answer.
A proposed new investment has projected sales of $837,000. Variable costs are 57 percent of sales, and fixed costs are $187,610; depreciation is $97,000. Assume a tax rate of 35 percent. What is the projected net income?
Today, you borrowed $3,100 on your credit card to purchase some furniture. The interest rate is 12 percent, compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly paym..
A company purchases equipment for $5 million, incurs shipping costs of $30, 000 and installation costs of $50,000. It also requires additional net working capital of $100,000. What is the depreciable base?
An oil company has installed an offshore production facility for $10 million. The annual maintenance cost of the facility is $60,000 per year for the first year, increasing by $10,000 per year for the next 9 years. In the 11th year, a major overhaul ..
Consider companies that have very distinct seasonal variations. Some companies may have periods of very little to no sales. Discuss the importance of budgeting for these types of companies.
A firm is reviewing a project with labor cost of $6.20 per unit; raw materials cost of $22.45 a unit, and fixed costs of $11,000 a month. Sales are projected at 8,200 units over the 3-month life of the project. What are the total variable costs of th..
Compare types of mortgage loans offered by different lenders
Big Manufacturer, Inc.’s perpetual preferred stock has an annual dividend of $7.50 per share and is selling in the market for $85.00 per share. If your required return on this preferred stock is 8.0%, what is the intrinsic value of this preferred sto..
A firm is anticipated to produce a $10,000 cash flow in year 1, $2,500 cash flows in years 2 through 4, and then will pay a steady stream of $1,250 cash flows into the foreseeable future (i.e. forever). Also, the firm has a weighted average cost of c..
It is important for society as a whole to solve the agency problem,
Wonder World is considering construction of a new attraction. It will require an investment of $10 million. The expected after tax cash flows are listed below and the required rate of return is 12%.
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