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The market consensus is that ABC has an ROE = 15% and a beta of 1.2. It plans to maintain indefinitely its traditional plowback (retention) ratio of 40%. This year’s earnings were $3 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 8%, and the risk-free rate is 3%.
(a) Find the price at which ABC stock should sell (intrinsic value V0).
(b) Calculate the (current) P/E ratio.
(c) Calculate the present value of growth opportunities (PVGO).
(d) Suppose your research convinces you ABC will announce momentarily that it will immediately increase its plowback (retention) ratio to 50%. Find the intrinsic value of the stock.
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For the past six years, the price of Slippery Rock stock has been increasing at a rate of 9.6 percent a year. Currently, the stock is priced at $67 a share and has a required return of 14 percent. What is the dividend yield?
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A $1,000 par-value, fixed coupon bond has 15 years remaining until maturity. The bond has an annual coupon rate of 10 percent and it pays quarterly coupon payments. If the market annual rate for this bond is 8 percent, what is the price of the bond?
Compare the decision to install a small power (up to 20 kW) synchronous generator with an induction generator.
How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate?
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The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $320,000. Of this amount, $300,000 is subject to five-year MACRS depreciation. Calculate the net..
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