Intrinsic value estimate of boat and tow group stock

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You expect Boat and Tow Group to have a ROE of 14%, a beta of 1.25, an expected earnings per share (E1) of $4.75, and a stable dividend payout ratio of 45%. The expected market risk premium is 9%, and the 10-year Treasury note yield is 2.05%.

a) Calculate the intrinsic value estimate of Boat and Tow Group stock (V0) according to the constant growth DDM.

b) Calculate the Present Value of Growth Opportunities (PVGO).

c) Calculate the justifiable forward P/E and trailing P/E according to the constant growth DDM.

d) If the expected ROE for Pirate Vision has been revised downward from 14% to 12%, recalculate the V0, PVGO, and the justifiable forward P/E and trailing P/E. Discuss whether these changes in V0, PVGO, and the justifiable forward P/E and trailing P/E are consistent with concepts in the subject.

Reference no: EM132411138

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