Explain how much is the market paying per share

Assignment Help Macroeconomics

Reference no: EM1334819

Intrinsic value of HP stock

1. The dividends of Charles Schwab Co. are expected to grow indefinitely by 5% per year.
a. If this year's year-end dividend is $8 and the firm's required rate of return is 10% per year, what must the current stock price be according to the DDM?
b. If the expected earnings per share are $12, what is the implied value of the ROE on future investment opportunities?
c. How much is the market paying per share for growth opportunities (i.e. for an ROE in future investments that exceeds the required rate of return securities of this risk class?

2. The risk-free rate of return is 8%, the expected return on the market portfolio is 15%, and the stock of HP has a beta coefficient of 1.2. HP pays out 40% of its earnings in dividends, and the latest earnings announced were $10 per share. Dividends were just paid and are expected to be paid annually. You expect that HP will earn an ROE of 20% on all reinvested earnings forever.
a. What is the intrinsic value of HP stock?
b. If the market price of a share of HP is currently $100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected one-year holding period return on HP stock?

Reference no: EM1334819

Questions Cloud

Elucidate why do you think us investors in mexico : Elucidate why do you think U.S. investors do not try to capitalize on the high interest rates in Mexico.

Explaining the community policing : Need information on the evolution of community policing and how it may assist in crime detection.

Find out and display the total owed for all taxpayers : A taxpayer's federal tax due is calculated as follow. First, the taxpayer gets a dependency exemption deduction of $2,000 for each child. So, if a taxpayer has two children, he or she would get a dependency exemption deduction of $4,000. A taxpaye..

Identify the primary activities to create value for customer : Identify the primary activities to create value for customers

Explain how much is the market paying per share : Explain how much is the market paying per share for growth opportunities. Exzplain what is your expected one-year holding period return on HP stock.

What is constrained resource : Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make.

Identifying important requirements to make decision : Identify the most important requirements for Grace to make her decision.

Prepare a memo proposing alternative ways : Prepare a memo proposing alternative ways to recognize employees for their contributions and to reward them in a nonmonetary way that would have value to the employees. about 800 words

Elucidate classical economists believed in self-correcting : Elucidate Classical economists believed in the self-correcting nature of the economic system. They believed that the major adjustment.

User Account

All Pages