Use this inlormation for the next two questions: Teradyne Inc (TER) has forecast
ID: 2620007 • Letter: U
Question
Use this inlormation for the next two questions: Teradyne Inc (TER) has forecasted EPS of $1.22 and DPS of $0.00. TER's current stock price is S 16.36 and its required rate of return is l 1.5%. Earnings are expected to grow at 8% annually for the next five years 1. (4 points) What is TER's present value of growth opportunities? (Enter an amount to the nearest S0.01. Leave the $ sign of) PVGO 2. (4 points) What is TER's PEG ratio (price-earnings to growth) Enter a ratio to the nearest 0.01 PEG ratio (6 points) Sophia Founet expects the next three annual dividends for Michigan Electric (ME) to he $0.76, 50.85, and S0.95. Then she expects the dividend to grow at an initial rate of18% decreasing at a constant rate to 2% over a 12 year period. After year 15, Sophia expects the dividend growth rate to be 2% The required rate of return for ME is 10% what is the share yalue of ME? (Enter an amount to the nearest $0.01. Leave the $ sign oft 3. Price of ME Price of ME
Explanation / Answer
Answer 1 Stock price=Earning/cost of equity + PVGO 16.36=1.22/.115 + PVGO 16.36-10.609=PVGO PVGO= 5.751 Answer 2 PEG ratio= Price to earning ratio/growth PEG ratio= 16.36/1.22/8 PEG ratio= 13.410/8 PEG ratio= 1.676 Answer 3 here we will use H model to compute value at time 3since growth declline linearly P3= D0*(1+GL) + D0*H*(Gs-GL)/required rate-GL P3= .95*(1+.18)+ .95*6*(.18-.02)/.10-.02 P3= 1.121+.912/.08 P3= 25.275 Year cash flow discount factor 1 0.76 0.909091 0.690909 2 0.85 0.826446 0.702479 3 26.225 0.751315 19.70323 stock price= 21.09662 stock price= 21.09662
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