What is the estimated value of the share price for XYs

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Q1. Company "X" has EPS of $ 10 at the end of the first year and a dividend distribution ratio of 40%, a discount rate of 16%, and a return on its retained earnings (ROE) of 20%. The company selects growth opportunities each year because it retains part of its profits with the same frequency.

a) Calculate the share price with the dividend discount model (DDM).

b) Calculate the share price with the investment opportunities model (VPNA).

Q2. The XY Company does not currently pay cash dividends and is not expected to do so for the next 5 years. His most recent EPS was $ 10, which was fully reinvested in the company. The ROE expected for the next 5 years is 20% per year and during that period it is expected to continue reinvesting all its profits. Subsequently, the ROE of new investments of the company is expected to fall to 15% and that the co. start paying cash dividends at a 40% rate that you will continue to pay indefinitely. The market capitalization rate is 15% per year. What is the estimated value of the share price for XYs?

Reference no: EM132988043

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