Question

The market consensus is that Analog Electronics Corporation has an ROE = 13%, a beta of 1.80, and plans to maintain indefinitely its traditional blowback ratio of 3/4. This year’s earnings were $3.10 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 14%, 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.) b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) 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.) d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/4. Find the intrinsic value of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Next Visit question mapQuestion 3 of 10 Total

Answer 1

1.
=3.1*(1-3/4)*(1+13%*3/4)/(5%+1.8*(14%-5%)-13%*3/4)=7.42849344978166

2.
=(1+13%*3/4)*(1-3/4)/(5%+1.8*(14%-5%)-13%*3/4)=2.39628820960699

3.
=3.1*(1-3/4)*(1+13%*3/4)/(5%+1.8*(14%-5%)-13%*3/4)-3.1*(1-3/4)/(5%+1.8*(14%-5%))=3.77283307242317

4.
=3.1*(1-1/4)*(1+13%*1/4)/(5%+1.8*(14%-5%)-13%*1/4)=13.3736072423398