You are running a hot Internet company. Analysts predict that its earnings will grow at 20%...

You are running a hot Internet company. Analysts predict that its earnings will grow at

20%

per year for the next five years. After that, as competition increases, earnings growth is expected to slow to

per year and continue at that level forever. Your company has just announced earnings of

million. What is the present value of all future earnings if the interest rate is

8%?

(Assume all cash flows occur at the end of the year.)

Solutions

Expert Solution

The Answer is $96.67 and go through attached for calculations

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

You are running a hot Internet company. Analysts predict that its earnings will grow at 40%...

You are running a hot Internet company. Analysts predict that its earnings will grow at 40% per year for the next five years. After that, as competition increases, earnings growth is expected to slow to 2% per year and continue at that level forever. Your company has just announced earnings of $3 million. What is the present value of all future earnings if the interest rate is 9%? (Assume all cash flows occur at the end of the year.)

You are running a hot Internet company. Analysts predict that its earnings will grow at 40%...

You are running a hot Internet company. Analysts predict that its earnings will grow at 40% per year for the next five years. After that, as competition increases, earnings growth is expected to slow to 3% per year and continue at that level forever. Your company has just announced earnings of $5 million. What is the present value of all future earnings if the interest rate is 7%? (Assume all cash flows occur at the end of the year.)

Assume a company you are analyzing is expected to grow its earnings and dividends at a...

Assume a company you are analyzing is expected to grow its earnings and dividends at a constant rate in the foreseeable future (forever). How will you find the intrinsic value of your stock? This answer requires multiple steps and concepts

Acceleron incorporated has just paid annual dividend of $1.50. Analysts predict dividends will grow by $0.12...

Acceleron incorporated has just paid annual dividend of $1.50. Analysts predict dividends will grow by $0.12 per year for the next seven years. After that, they expect earnings to grow by 4% per year, and the dividend payout rate to remain constant. If Acceleron's equity cots of capital is 8.5% per year, what price should Acceleron stock sell for today?

1. Analysts of the ICM Corporation have indicated that the company is expected to grow at...

1. Analysts of the ICM Corporation have indicated that the company is expected to grow at a 5 percent rate for as long as it is in business. Currently ICM’s stock is selling for $70 per share. The most recent dividend paid by the company was $5.60 per share. If ICM issues new common stock, it will incur flotation costs equal to 7 percent. ICM’s marginal tax rate is 35 percent. What is its cost of retained earnings—that is, its...

Company ABC's earnings per share this year are $5. ABC's earnings are expected to grow at...

Company ABC's earnings per share this year are $5. ABC's earnings are expected to grow at rate g every year. The return that investors expect on ABC is 10%. ABC's current (ex-dividend) stock price is $80. ABC's payout ratio is 0.4. (a) Determine rate g. (b) Determine the present value of ABC's growth opportunities.

Next year's earnings are estimated to be $5. the company plans to reinvest 20% of its...

Next year's earnings are estimated to be $5. the company plans to reinvest 20% of its earnings at 15%. If the cost of equity is 9% what is the present value of growth opportunities? A. $9.09 B. $10.10 C. $11.11 D. $12.21

Equity analysts predict Angel will pay its first annual dividend of $0.02 in 2021. The dividend...

Equity analysts predict Angel will pay its first annual dividend of $0.02 in 2021. The dividend in 2022 is expected to be 25% larger than the 2021 dividend as the company’s cash flows grow substantially. Beyond 2022 the dividend is expected to increase by 4% p.a. forever. If the required return is 12%, then what is the fair value of an Angel share today, in 2019?

Zeta Inc. expects earnings/dividends to grow at an annual rate of 20, 15, and 10 percent...

Zeta Inc. expects earnings/dividends to grow at an annual rate of 20, 15, and 10 percent respectively over the next three years after which the company settles into a constant growth pattern of 5 percent per year indefinitely. If current dividend is $ 2 per share and investors require a 16 percent annual return on Vega stock, what is a fair price for a share of Vega's stock today?

Suppose that the consensus forecast of security analysts of your favorite company is that earnings next...

Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be $5.00 per share. The company plows back 50% of its earnings and if the Chief Financial Officer (CFO) estimates that the company's return on equity (ROE) is 16%. Assuming the plowback ratio and the ROE are expected to remain constant forever: Suppose that you are confident that 10% is the required rate of return on the stock. What does the market...

Subjects