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What constant expected growth rate of the firm is in line

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Reference no: EM13851379

a. Determine the price of a 10-year annuity paying $10 each year with opportunity cost of capital 10%. Also determine its annuity factor.

b. A growth stock with market capitalization rate of 20%, has 40% of its value from growth opportunities. Determine its price/earnings ratio (current price / earnings per share).

c. The total value of firm L is 100 ($million). The dividend policy of the firm is a 5% dividend yield; its debt policy is to be 75% equity financed. Investors expect a 16% return on stocks of firm L, and ask 4% interest on firm L's debt.

What constant expected growth rate of the firm is in line with these figures (assuming no new equity will be issued)? What then are the expected earnings in year 1 and in year 5?

Reference no: EM13851379

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