Calculate value of share of stock-investors required rate

Assignment Help Financial Management

Reference no: EM13847262

Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions:

-the investors required rate of return 14%

-the expected level of earning at the end of the year (E1) is $5

-the firm follows a policy of retaining 40% of it's earnings.

-the return on equity (ROE) is 15%, and

-similar shares of stock sell at multiples of 7.500 times earning per share.

Now show that you get the same answer using the discounted dividend model.

a. the stock price using the P/E ratio valuation method is $________ (round to the nearest cent.)

b. The stock price using the dividend discount model is $_________ (round to the nearest cent.)

Reference no: EM13847262

Questions Cloud

Compare the scheduling tools network diagram and pert : Please compare the following scheduling tools. Please provide graphs and sample project examples to support your comparisons. Network Diagram, PERT and Critical Path Method - Slack

How leaders are developed in samsung : How leaders are developed in Samsung

Manufacturing operation three type of boreholes for drilling : In some manufacturing operation three types of boreholes for drilling may be used. The cheapest is a stainless high speed steel (HSS), but has a shorter one of gold or another oxide of titanium nitride life. The purchase of HSS drills cost $ 3,500 un..

How does this quote relate to the role : How does this quote relate to the role of the early childhood administrator. Share a personal experience in which your personal values impacted a decision that you made. Provide an explanation of times when your personal values and morality shou..

Calculate value of share of stock-investors required rate : Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: the investors required rate of return 14%. the expected level of earning at the end of the year (E1) is $5. the firm follows a policy o..

Determine causes of cultural changes within an organization : Determine causes of cultural changes within an organization that is operating in a global environment.

Present and future values for different periods : Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually. Round your answers to the nearest cent. An initial $700 compounded for 1 year at 9%. The present value of $700 due in 2 years at a..

Writing a business information system paper : Writing a business information system paper- Discuss ERP systems of Kohls and what makes an ideal ERP system from your research

Loan amortization and ear : You want to buy a car, and a local bank will lend you $30,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 11% with interest paid monthly. What will be the monthly loan payment? What will be the lo..

User Account

All Pages