Question

In: Finance

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

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.

Solutions

Expert Solution

Calculation of price of stock:
Growth= 4%
Required return= 9%
EPS 1= 3.74
Price= EPS1/(required return-growth)
          = 3.74/(0.09-0.04)= 3.74/0.05= $74.8
Price of stock is $74.8

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

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.
The total book value of WTC's equity is $13 million, and book value per share is...
The total book value of WTC's equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firms bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 6% and the firm's tax rate is 21%. What is the company's WACC? (Do not round intermediate calculations. Enter your...
1. The total book value of WTC’s equity is $13 million, and book value per share...
1. The total book value of WTC’s equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firm’s bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 6%, and the firm’s tax rate is 40%. What is the company’s WACC? (Do not round intermediate calculations. Enter...
Book value per share may not approximate market value per share because: a. the book value...
Book value per share may not approximate market value per share because: a. the book value excludes common equity. b. book values are based on replacement costs   c. book value is related to accounting values and market value is related to the future potential as seen by investors. d. investors do not understand book value.
Book value per share may not approximate market value per share because: a. the book value...
Book value per share may not approximate market value per share because: a. the book value excludes common equity. b. book values are based on replacement costs   c. book value is related to accounting values and market value is related to the future potential as seen by investors. d. investors do not understand book value.
What affects the book value of bank equity? What affects its market value?
What affects the book value of bank equity? What affects its market value?What is the reason that banks are exposed to liquidity risk more so than most non-financial firms?Who, if anyone, pays for bank deposit insurance? Why is it called “government” deposit insurance?What types of firms would generally consider both bond issues and bank loans as potential forms of debt?
Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 162,500...
Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 162,500 shares outstanding, and its debt-to-assets ratio was 46%. How much debt was outstanding?
Bank Share Prices: If The Bank’s share price relative to book value was below its competitor...
Bank Share Prices: If The Bank’s share price relative to book value was below its competitor banks by about 25%. Management made it clear that it believed the share price was undervalued, as opposed to low - valued due to a lack of investor confidence. Make assumptions as to why the bank's share price was relative to book value less than competitors? give a recommendation Make an assumption why it was undervalued was it due to investors confidence why? give...
The stock price is $20 per share and the book value is $22. The growth rate...
The stock price is $20 per share and the book value is $22. The growth rate is 6% and the EPS is $2. Who might buy this stock and why?
Book Co. has 1.7 million shares of common equity with a par (book) value of $1.45, retained earnings of $30.1 million, and its shares have a market value of $48.59 per share.
Book Co. has 1.7 million shares of common equity with a par (book) value of $1.45, retained earnings of $30.1 million, and its shares have a market value of $48.59 per share. It also has a debt with a par value of $21.1 million that is trading at 101% of par.a. What is the market value of its equity?b. What is the market value of its debt?c. What weights should it use in computing its WACC?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT