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liubo4ka [24]
2 years ago
9

7. Constant growth rates One of the most important components of stock valuation is a firm’s estimated growth rate. Financial st

atements provide the information needed to estimate the growth rate. Consider this case: Robert Gillman, an equity research analyst at Gillman Advisors, believes in efficient markets. He has been following the mining industry for the past 10 years and needs to determine the constant growth rate that he should use while valuing Pan Asia Mining Co. Robert has the following information available: • Pan Asia Mining Co.’s stock (Ticker: PAMC) is trading at $13.75. • The company’s stock is expected to pay a year-end dividend of $0.66 that is expected to grow at a certain rate. • The stock’s expected rate of return is 6.60%. Based on the information just given, what will be Robert’s forecast of PAMC’s growth rate?
Business
1 answer:
olchik [2.2K]2 years ago
4 0

Based on information given, Robert’s forecast of PAMC’s growth rate will be 11.4%.

Here, we are going to calculate Robert’s forecast of PAMC’s growth rate by using the information provided..

<u />

  • The formula to be deployed is Price = Dividend in 1 year/(cost of equity - growth rate)

<u />

<u>Given Information</u>

Pan Asia Mining Co.’s stock is trading at $13.75

Expected year-end dividend = $0.66

Stock’s expected rate of return = 6.60%.

<em> </em>

<em>$</em>13.75 = $0.66 / (6.60% - Growth rate)

<em>$</em>13.75 = $0.66 / (0.066 - Growth rate)

<em>$</em>13.75*((0.066 - Growth rate) = $0.66

$0.9075 - $13.75(Growth rate) = $0.66

$13.75(Growth rate) = $0.66 + $0.9075

Growth rate = $1.5675 / $13.75

Growth rate = 0.114

Growth rate = 11.4%

Therefore, Robert’s forecast of PAMC’s growth rate will be 11.4%.

See similar solution here

<em>brainly.com/question/15517733</em>

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If a borrower can afford to make monthly principal and interest payments of 1000 and the lender will make a 30 year loan at 5 1/
Alexus [3.1K]

Answer:

The the largest loan this buyer can afford is 14,533.75.

Explanation:

This can be determined using the formula for calculating the present value of an ordinary annuity as follows:

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PV30 = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)

Where;

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PV30 = 1000 * ((1 - (1 / (1 + 0.055))^30) / 0.055)

PV30 = 1000 * 14.5337451711221

PV30 = 14,533.75

Step 2: Calculation of the present value or the loan the buyer can afford for a 20 year loan at 4 1/2%

PV20 = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (2)

Where;

PV30 = Present value or the loan the buyer can afford for a 20 year loan at 4 1/2% =?

P = monthly payment = 1000

r = interest rate = 4 1/2% = 4.50% = 0.045

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Substitute the values into equation (1) to have:

PV20 = 1000 * ((1 - (1 / (1 + 0.045))^20) / 0.045)

PV20 = 1000 * 13.0079364514537

PV20 = 13,007.94

Conclusion

Since 14,533.75 which is the present value or the loan the buyer can afford for a 30 year loan at 5 1/2% is greater than the 13,007.94 which is the present value or the loan the buyer can afford for a 20 year loan at 4 1/2%, it therefore implies that the the largest loan this buyer can afford is 14,533.75.

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