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What is your estimate of DEQS intrinsic value per share

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Reference no: EM132199561

Question - The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $13.50, all of which was reinvested in the company. The firm's expected ROE for the next five years is 22% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 17%, and the company is expected to start paying out 25% of its earnings in cash dividends, which it will continue to do forever after. DEQ's market capitalization rate is 20% per year.

a. What is your estimate of DEQS's intrinsic value per share?

b. What do you expect to happen to price in the following year?

c. What is your estimate of DEQS's intrinsic value per share if you expected DEQS to pay out only 25% of earnings starting in year 6?

Reference no: EM132199561

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