2 Suppose a firm has 1.5 billion shares outstanding and just reported a net income of $3 billion. The firm expects to maintain adividend payout ratio of 60 percent on their earnings. If the firm's price-earnings ratio is 9.5, it leverage ratio is 4 and its returnon equity is 8 percent, what is its required rate of return? (Please choose the closest answer)Oa.12.7 percentO b. 11.7 percentOc. 9 percentO d. 7.7 percentO e. 9.7 percent

Answered: Suppose a firm has 1.5 billion shares…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose a firm expects EPS of $1.50 for the end of period and expect to mantain a dividend payout ratio of 60%. if the firm's price earning ratio is 7.8 and its return on equity is 10%, what is its required rate of return
onsider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and its expected return on the money retained (i) is 0.10. What is investor’s required rate of return?
5. The firm's expected year-end dividend is D1 = P 1.60, its required return is r, =11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is the firm's expected stock price in 7 years, i.e., what is P? a. P41.37 d. P43.44 с. Р 37.52 f. P43.56 b. Р39.40 e. P45.61 6. The firm just paid a dividend of Do =P 1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value? с. Р43.75 f. P 44.87 a. P41.59 d. P 46.87 b. Р42.65 e. P45.99
Suppose firm A has just earned BDT 5 per share out of which it retained BDT 3 and paid out the remaining balance as dividend. The required rate of return is 10% and the return on equity is 6%. What is firm A’s justified P/E?
A. CALCULATE the cost of equity capital of H Ltd., whose risk-free rate of return equals 10%. The firm's beta equals 1.75 and the return on the market portfolio equals to 15%. B. The current ratio of H Ltd is 5:1 and standard current ratio given by accounting bodies is 2:1? Do you think that H Ltd should try to reduce its current ratio?
Suppose you valued a firm and came up with the value of equity of 9.50. The probability of fınancial distress is 10 percent in which case, equity holders will recover 2.0 per share. What is the value per share under this scenario? O 8.75 O 9.30 O 2.00
The market price of an equity share with face value of Rs 10 is Rs 35, with ROI of 24% and cost of capital of 18%, what will be the Dividend payout ratio?(Use Walter model) a. 10% b. 25% c. 0% d. Cannot be determined
Consider the following security: Brous Metalworks Earnings Per Share, Time = 0 $2.00 Dividend Payout Rate 0.250 Return on Equity 0.150 Market Capitalization Rate 0.125 Required: Using the information in the tables above, please calculate the sustainable growth rate, dividends per share, and intrinsic value per share. Then solve for the present value of growth opportunities. (Use cells A5 to B8 from the given information to complete this question.) Brous Metalworks Sustainable Growth Rate Dividends per share (Next Year) Intrinsic Value No-Growth Value Per Share Present Value of Growth Opportunities (PVGO)
You have assigned the following values to these three firms: Upcoming Dividend US Bancorp Praxair Eastman Kodak Price $ 29.80 59.15 36.50 $ 3.20 1.51 1.00 US Bancorp required return Praxair required return Eastman Kodak required return CAPM Growth 8.80% Assume that the market portfolio will earn 15.50 percent and the risk-free rate is 5.70 percent. Compute the required return for each company using both CAPM and the constant-growth model. Note: Do not round intermediate calculations and round your final answers to 2 decimal places. % % % 13.00 11.50 Beta 1.59 2.20 0.98 Constant-Growth Model % % %
In the context of DDM, a dividend payout ratio equal to 100% implies that the future growth rate of dividends per share (DPS) will be equal to 0%. a. True b. False
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If the earnings per share of the firm is OMR 6.4 and the market price is OMR 80 and the growth rate of the firm is 5 %. Calculate Ke? a. None of these b. 10% c. 12% d. 13%

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