Chapter 4: Q13-9B (page 436)
The market capitalization rate for Admiral Motors Company is 8%. Its expected ROE is 10% and its expected EPS is $5. If the firm’s plowback ratio is 60%, what will be its P/E ratio?
Answer
20
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How do each of the following affect the sensitivity of profits to the business cycle?
a. Financial leverage
b. Operating leverage
A common stock pays an annual dividend per share of \(2.10. The risk-free rate is 7% and the risk premium for this stock is 4%. If the annual dividend is expected to remain at \)2.10, what is the value of the stock?
In what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm?
Here are data on two firms::
a. Which firm has the higher economic value added?
b. Which has higher economic value added per dollar of invested capital?
Tri-coat Paints has a current market value of \(41 per share with earnings of \)3.64. What is the present value of its growth opportunities (PVGO) if the required return is 9%?
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