1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
zubka84 [21]
4 years ago
12

The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next

five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm’s ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 15% per year. a. What is your estimate of DEQS’s intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Because there is (Click to select) , the entire return must be in (Click to select) . c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.)
Business
1 answer:
malfutka [58]4 years ago
8 0

Answer:

a) $94.88

b)  in 1 year, the intrinsic price of the stocks should increase to $109.11

Explanation:

year                      dividend              EPS

0                              0                       $10

1                               0                       $12

2                              0                       $14.40

3                              0                       $17.28

4                              0                       $20.736

5                              0                       $24.8832

6                              $11.45               $28.61568

growth rate up to year 5 = 20%

ROE growth rate starting year 6 = 15%

dividend growth rate starting year 6 = 15% x (1 - 40%) = 9%

cost of equity = 15%

horizon value at year 5 = $11.45 / (15% - 9%) = $190.83

current intrinsic value per stock = $190.83 / 1.15⁵ = $94.88

intrinsic price in 1 year = $190.83 / 1.15⁴ = $109.11

You might be interested in
At the Wedge Natural Co-op in Minneapolis, employees talked about how the long-time general manager had fired almost the entire
algol13

Answer:

story

Explanation:

Based on the inforamation provided describing the scenario it can be said that the underlined missing word is "story". That refers to the entire event that the employee was explaining, which that individual employee experienced first hand. He seems to have explained this story to show how the food co-op was evolving into a more customer service focused company that valued a very specific work ethic.

7 0
3 years ago
The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of
irinina [24]

Answer:

Present value of the cash flows = $1,625,000 /1.04 + $1,685,335/1.04  + $1,975,000/1.04 + $600,000/1.04 = $5,389,337.27

You recently moved to a new apartment and signed a contract to pay monthly rent to your landlord for a year.  ⇒ ANNUITY

SOE Corp. hires an average of 10 people every year and matches the contribution of each employee toward his or her retirement fund.  ⇒ UNEVEN CASH FLOW (EACH EMPLOYEE'S SALARY VARIES, SO THE TOTAL EXPENSE ALSO VARIES)

Franklinia Venture Capital (FVC) invested in a budding entrepreneur's restaurant. The restaurant owner promises to pay FVC 10% of the profit each month for the next 10 years.  ⇒ UNEVEN CASH FLOW (PROFITS ARE NOT IDENTICAL FORM ONE PERIOD TO ANOTHER)

You have committed to deposit $600 in a fixed interest-bearing account every quarter for four years. ⇒ ANNUITY

6 0
3 years ago
According to a 2005 study of high school students in wisconsin, what is the primary motivator today for high school students' de
Solnce55 [7]
According to 2005 study of high school students in Wisconsin, the primary motivator today for high school students' decision to participate in community or service work is the edge it gives them during college admission. Students see community service as a mean of enhancing their eligibility for college admission, because it is one of the criteria that college admission committee consider during admission process.
6 0
3 years ago
Who is Ackerman? <br><br>A. Levi <br><br>B. Petra <br><br>C. Erwin<br><br><br><br><br><br>​
kvasek [131]
I think it’s A
I hope it’s help
4 0
3 years ago
Read 2 more answers
For each of the following events, determine the amount of freight paid by THe Box Company. ALso indicate whether the freight cos
VladimirAG [237]

Answer:

When FOB shipping point is used, buyer pays the freight. When FOB destination is used, the  seller pays the freight.

a. Purchased merchandise with freight costs of $650. The merchandise was shipped FOB shipping point.  

  • the Box Company is responsible for paying the freight charges ($650) and they are classified as product costs.

b. Shipped merchandise to customers, freight terms FOB shipping point. The freight costs were $310.

  • no freight costs

c. Purchased inventory with freight costs of $1,500. The goods were shipped FOB destination.

  • no freight costs

d. Sold merchandise to a customer. Freight costs were $520. The goods were shipped FOB destination.

  • the Box Company is responsible for paying the freight charges ($520) and they are classified as period costs.
7 0
3 years ago
Other questions:
  • Which of the followings factors is most important to consider when setting your pricing structure? A. Charging only wealthier cu
    14·1 answer
  • The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls, then A) the income effect which ca
    14·1 answer
  • A group of 2-year-old infants are selected for a special program because their iq scores are very low. five years later, most of
    6·1 answer
  • As Jake began his market research, he discovered that there wasn't another retail boating supply business for more than 100 mile
    12·2 answers
  • What are some tasks commonly performed in Environmental Service Systems jobs? Check all that apply. inspecting facilities measur
    14·2 answers
  • Bryant Investments is putting out a new product. The product will pay out $32,000 in the first year, and after that the payouts
    8·1 answer
  • Your friend, Suzie Whitson, has designed a new type of outdoor toy that helps children learn basic concepts such as colors, numb
    12·1 answer
  • If a development team member takes off during a Spring, it is expected that theother team members will pick up the slack for the
    12·1 answer
  • Raoul receives a postcard from a car dealership reminding him of the substantial discounts and extras he can receive if he buys
    10·1 answer
  • Assuming noah made 6-month payments on its wood purchases from indonesia, what is the schedule of foreign currency amounts over
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!