(Stocks) ABC Corp has a 10.7% return on equity and reinvests (retains) 34% of its profits....

(Stocks) ABC Corp has a 10.7% return on equity and reinvests (retains) 34% of its profits. What is the intrinsic value of the company's share of stock, to the nearest penny, if the required rate of return is 12.58% and the most recent annual dividend per share (D0) was $2.27? If your answer is, e.g., $45.365, record it as 45.37.

Expert Solution

Growth rate = Return on Equity*Retention ratio

= 10.7%*34%

= 3.638%

Intrinsic value = Expected Dividend in year1/(Required return - growth rate)

= 2.27*(1.03638)/(12.58%-3.638%)

= $26.31 per share

Hence, the answer is $26.31

jeff jeffy answered 2 years ago

(Stocks) ABC Corp has a 14.18% return on equity and reinvests (retains) 37% of its profits....

(Stocks) ABC Corp has a 14.18% return on equity and reinvests (retains) 37% of its profits. What is the intrinsic value of the company's share of stock, to the nearest penny, if the required rate of return is 16.21% and the most recent annual dividend per share (D0) was $2.55? If your answer is, e.g., $45.365, record it as 45.37.

ABC Corp has a 11.96% return on equity and reinvests (retains) 33% of its profits. What...

ABC Corp has a 11.96% return on equity and reinvests (retains) 33% of its profits. What is the intrinsic value of the company's share of stock, to the nearest penny, if the required rate of return is 16.9% and the most recent annual dividend per share (D0) was $2.58?

A firm reinvests 60% of its earnings in projects with return on equity of 10%. The...

A firm reinvests 60% of its earnings in projects with return on equity of 10%. The market capitalization rate is 15%. If the expected year-end dividend is $2/share and paid-out earnings of $5/share, find out the growth rate and present value of the growth opportunity. Given: Long-term government bond rate 4% Historical risk premium on the market 7% Beta estimate of Sylvia’s Separates 0.95 Price range of Sylvia’s Separates’ share price $5 -...

Dalton Inc. has a return on equity of 11.4 percent and retains 56 percent of its...

Dalton Inc. has a return on equity of 11.4 percent and retains 56 percent of its earnings for reinvestment purposes. It recently paid a dividend of $2.75 and the stock is currently selling for $39. a. What is the growth rate for Dalton Inc.? b. What is the expected return for Dalton's stock? c. If you require a 12 percent return, should you invest in the firm?

Slalom Corporation retains and reinvests all its earnings. So, Slalom does not pay any dividends, and...

Slalom Corporation retains and reinvests all its earnings. So, Slalom does not pay any dividends, and it has no plans to pay dividends any time soon. A major pension fund is interested in purchasing Slalom’s stock. The pension fund manager has estimated Slalom’s free cash flows for the next 3 years as follows: $5,000,000, $9,000,000, and $12,000,000. After Year 3, free cash flow is projected to grow at a constant 4%. Slalom’s WACC is 10%, the market value of its...

There is a firm which reinvests its profits back in itself. Consequently, it does not distribute...

There is a firm which reinvests its profits back in itself. Consequently, it does not distribute any of its profit to the owners for the first 5 years. Afterward, it begins paying $6 per share for the 6th year. That rises by 200% for the 7th year and by 100% for the 8th. Beyond the 8th year, it grows perpetually at a constant rate. Its dividend payout ratio is .6 Its D/E (debt-to-equity) is 50/50 its tax rate is .2...

Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings.

Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $6 million, $10 million, and $15 million. After the...

ABC Corp. debt is P15 million and has an equity of P5 million. Its historical levered...

ABC Corp. debt is P15 million and has an equity of P5 million. Its historical levered equity beta has been 2. If the firm were to increase its leverage from P15 million to P18 million and use the cash to repurchase shares, what would you expect its levered equity beta to be

The following table, contains annual returns for the stocks of ABC Corp. (ABC ) and XYZ...

The following table, contains annual returns for the stocks of ABC Corp. (ABC ) and XYZ Corp. (XYZ ). The returns are calculated using end-of-year prices (adjusted for dividends and stock splits). Use the information for ABC Corp. (ABC ) and XYZ Corp. (XYZ ) to create an Excel spreadsheet that calculates the average returns over the 10-year period for portfolios comprised of ABC and XYZ using the following, respective, weightings: (1.0, 0.0), (0.9, 0.1). The average annual returns over...

The following table contains annual returns for the stocks of ABC Corp. (ABC) and Company B...

The following table contains annual returns for the stocks of ABC Corp. (ABC) and Company B (B). The returns are calculated using end-of-year prices (adjusted for dividends and stock splits). Use the information for ABC Corp. (ABC) and Company B (B) to create an Excel spreadsheet that calculates the average returns over the 10-year period for portfolios comprised of ABC and B using the following, respective, weightings: (1.0, 0.0), (0.9, 0.1), (0.8, 0.2), (0.7, 0.3), (0.6, 0.4), (0.5, 0.5), (0.4,...

Question