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pantera1 [17]
3 years ago
8

Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 20%, and it will mai

ntain a plowback ratio of 0.30. Its projected earnings are $2 per share. Investors expect a 14% rate of return on the stock.
a.

At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.)


Price $

P/E ratio

b.

What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
1 answer:
Pachacha [2.7K]3 years ago
5 0

Answer:

Explanation:

a.)

First, find the growth rate using the ROE and the retention rate;

<em>g = ROE + retention rate</em>

g = 0.20 * 0.30

g = 0.06 or 6%

Next, find price using Dividend discount model (DDM);

<em>Price = Div/ (r-g)</em>

where Div = next year's dividend

r = required return

g = growth rate ,

Div = earnings * (1- plowback rate)

Div = $2* 0.70 = $1.4

Next, plug in the numbers to the formula above;

Price = 1.4/ (0.14 - 0.06)

Price = $17.50

Price earnings ratio; PE = Price/ earnings per share

PE = 17.50/ 2 = 8.75

b.) Present value of growth opportunities (PVGO)

Use PVGO formula to find the answer. It is as follows;

PVGO = Price - (E/r)

whereby, E= earnings per share = $2

r = investors required rate of return = 14%

Price = $17.50

PVGO = 17.50 + (2/0.14)

= 17.50 + 14.2857

= 31.7857

Therefore, Present value of growth opportunities is $31.79

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Customer's journey. is defined as the active research process someone goes through leading up to a purchase. It is called a journey because each one of your prospective customers will be at different points in their journey towards a purchase.

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7 0
1 year ago
are useful when you want to show the ratio of different parts to the whole. A. tables B. pie graphs C. bar graphs D. line graphs
kirill115 [55]
I think that the answer is B.
6 0
3 years ago
Read 2 more answers
A $200 petty cash fund has cash of $20 and receipts of $177. The journal entry to replenish the account would include a credit t
IRISSAK [1]

A $200 petty cash fund has cash of $20 and receipts of $177. The journal entry to replenish the account would include a credit to:

d. Cash for $180

Explanation: As observed above the petty cash receipts are falling short of $3, But that will be adjusted with expenses as its a small amount and balance of $200 needs to be maintained in the petty cash.

6 0
3 years ago
Read 2 more answers
You are going to deposit $24,500 today. You will earn an annual rate of 5.5 percent for 8 years, and then earn an annual rate of
NeTakaya

Answer:

Future value at the end of 19 years =$63,637.94

Explanation:

<em>The Future value (FV) of an investment is the total amount (principal plus interest) that will accumulate in the future where interest is paid and compounded at a particular rate per period for a certain number of periods.</em>

This can be done using the formula below

FV = PV × (1+r)^(n)

FV- Future Value

PV- amount invested, n- number of years, r - interest rate

The amount due after 19 years would be determined in two steps

Step 1: FV of 24,500 at 5.5% for 8 years

FV = 24,500× (1+0.055)^8 =37,599.819

Step 2 : FV of 37599.81962  invested for 11 years at 4.9% p.a

FV = ?  P=37,599.81,  n- 11, r- 4.9%

FV = 37,599.81 × (1.049)^11= 63,637.94

Future value at the end of 19 years =$63,637.94

7 0
3 years ago
Trinkle Co., Inc. made several purchases of long-term assets in Year 1. The details of each purchase are presented here.
Orlov [11]

Answer:

New Office Equipment $42,863

Basket Purchase Of Copier, Computer, Scanner $61,500

Land For New Warehouse $310,050

Explanation:

Calculation to determine the amount of cost to be capitalized in the asset accounts

NEW OFFICE EQUIPMENT

Amount of cost to be capitalised in the asset accounts = $41,900*0.98+$860+$510+$431

Amount of cost to be capitalised in the asset accounts =$41,062+$860+$510+$431

Amount of cost to be capitalised in the asset accounts =$42,863

BASKET PURCHASE OF COPIER, COMPUTER AND SCANNER

Amount of cost to be capitalised in the asset accounts = $22,755 + $6,765 + $31,980

Amount of cost to be capitalised in the asset accounts= $61,500

LAND FOR NEW WAREHOUSE with an old building torn down

Amount of cost to be capitalised in the asset accounts = $82,400 + $4,750 - $1,800 + $7,700 + $217,000

Amount of cost to be capitalised in the asset accounts = $310,050

Therefore The Amount of cost to be capitalised in the asset accounts are:

New Office Equipment $42,863

Basket Purchase Of Copier, Computer, Scanner $61,500

Land For New Warehouse $310,050

5 0
2 years ago
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