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1 year ago

What is the direct financing?.

1 answer:

4 0

Direct financing occurs when you request for a loan from the same lender—typically a bank or other financial institutions.

In the case of direct financing, you will be given your particular loan or interest rate and informed of the total amount you must pay at the dealership. The adaptability and customizability of direct financing are two of its main benefits. Before or after shopping, you can submit as many loan applications as you like. Plus, when you deal with a lender directly, you have complete control over the procedure.

The fact that direct financing typically requires more time is one drawback. Additionally, make sure to conduct some research to identify your best options.

To know about indirect financing visit:

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3 years ago

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BabaBlast [244]

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3 years ago

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The market consensus is that Analog Electronic Corporation has an ROE = 9%, a beta of 1.25, and plans to maintain indefinitely i

Gekata [30.6K]

Answer:

a. Stock Price is $10.60.

b. Trailing P/E ratio is 3.53, while Leading P/E ratio is 3.33.

c. Present value of growth opportunitiesis -$9.28.

d .Stock Price is $15.85.

Explanation:

The following are given in the question:

ROE = 9%

b = beta = 1.25

pr = Plowback ratio = 2/3 = 0.67

dpr = dividend payout ratio = 1- pr = 1/3 = 0.33

e0 = This year’s earnings per share = $3

mr = The coming year’s market return = 14%

tr = T-bills return = 6%

We can now proceed as follows:

a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The stock price can be calculated using the following formula:

P0 = Stock Price = d * (1 + g) / (r - g) …………………………. (1)

Where;

d = dividend per share = e0 / dpr = $3 / (1 / 3) = $1

g = Sustainable growth rate = ROE * pr = 9% * 2/3 = 0.06

rf = Risk free rate = Return on T-bills = 6%

b = Beta = 1.25

mr = Market return = 14%

r = Required return on Equity = rf + b * (mr - rf) = 6% + 1.25 * (14% - 6%) = 0.16

Substituting the values into equation (1), we have:

Stock Price = $1 * (1 + 0.06) / (0.16 – 0.06)

Stock Price = $1 * 1.06 / 0.10

Stock Price = $1 * 10.60

P0 = Stock Price = $10.60

b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Trailing P/E ratio = P0/E0 = $10.60 / $3 = 3.53

Leading P/E ratio = P0/e1 ………………………………………. (2)

Where;

e1 = e0 * (1 + g) = $3 * (1 + 0.06) = 3.18

Substituting the values into equation (2), we have:

Leading P/E ratio = $10.60 / 3.18 = 3.33

c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

P0 = e1 / r + pvgo …………………………………… (3)

Where pvgo denotes present value of growth opportunities, and P0, e1 and r are as already obatained in part a and b.

Substituting the values into equation (2) and solve for pvgo, we have:

$10.60 = $3.18 / 0.16 + pvgo

$10.60 = $19.875 + pvgo

pvgo = $10.60 - 19.875

pvgo = -$9.28

d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/3. Find the intrinsic value of the stock.

g = ROE * pr = 9% * (1 / 3) = 3%

dpr = 1 – pr = 1 - 1/3 = 2/3

d = dividend per share = e0 / dpr = $3 / (2 / 3) = $2

Stock Price = d * (1 + g) / (r - g) = $2 * (1 + 3%) / (0.16 – 3%)

Stock Price = $2 * (1 + 3%) / (0.16 – 3%)

Stock Price = $15.85

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4 years ago