The market''s estimate of the company''s growth ratete

Reference no: EM13269539

Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be E1 = $5.00 per share. Suppose that the company tends to plow back 50% of its earnings and pay the rest as dividends. If the Chief Financial Officer (CFO) estimates that the company's growth rate will be 8% from now onwards, answer the following questions.
a) If your estimate of the company's required rate of return on its stock is 10%, what is the equilibrium price of the stock?
b) Suppose you observe that the stock is selling for $50.00 per share, and that this is the best estimate of its equilibrium price. What would you conclude about either (i) your estimate of the stock's required rate of return; or (ii) the CFO's estimate of the company's future growth rate?
c) Suppose your own 10% estimate of the stock's required rate of return is shared by the rest of the market. What does the market price of $50.00 per share imply about the market's estimate of the company's growth rate?

Reference no: EM13269539

Questions Cloud

Explain what is the molarity of methanol in the solution : An aqueous solution is 5.80% methanol by mass with d=0.988g/ml. What is the molarity of methanol in this solution

Estimate of the market value of company preferred stock : The average yield on preferred stock of this type among other companies is 6%. Given these conditions, what is your estimate of the market value of this company's preferred stock?

Write a program to calculate and outputs the monthly payback : The user of your program will know the employee's name and the gross pay for the employee. Each employee has the following deductions taken from his gross pay: Federal Income Tax: 15% State Tax: 3.5% Social Security + Medicare Tax: 8.5% Health Ins..

Explain electron moves from energy state on absorbing energy : An electron moves from n = 1 to the n = 6 energy state on absorbing energy. Match the energy absorbed (in Joules) with the one electron ion to which this electron belongs.

The market''s estimate of the company''s growth ratete : Suppose your own 10% estimate of the stock's required rate of return is shared by the rest of the market. What does the market price of $50.00 per share imply about the market's estimate of the company's growth rate?

What is today value of the stock : A preferred stock pays a $7 dividend, and the required rate of return that investors have for this stock is 9%. Given these conditions, what is today's value of the stock?

Find what are the control inputs to the fsm : A "shift and add" multiplier works as follows: given two n bit numbers X and Y , look at the LSB of X: if it is one, then add Y to the running sum. If it is zero, then don't do anything (since multiplying by 0 is 0!). Next, shift X to the right by..

Prepare a report about burj khalifa : Can you write 800 to 1000 words about Burj Khalifa, Dubai 2020 and the Football World Cup in Qatar

Explain the time value of money using this scenario : Explain the time value of money using this scenario as an example.

User Account

All Pages