The book value of equity for Shale Oil, Inc. is currently $23/share. Its required rate of return is 9%.

The book value of equity for Shale Oil, Inc. is currently $23/share. Its required rate of return is 9%. The company’s expected EPS one period from today is $3.74. Assuming that the company’s EPS is expected to grow at a constant rate of 4% per year in perpetuity, calculate the present value of the company’s stock.

Expert Solution

We can use EPS as free cash flow to find out present value of stock

here EPS after 1 years EPS1 = $3.74

growth rate g= 4%

rate of return r = 9%

So present value of common stock = EPS1/(r-g)

=3.74/(9%-4%) = 3.74/5% = $74.8

jeff jeffy answered 2 years ago

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