MF Corp. has an ROE of 15% and a plowback ratio of 20%. If the coming year\'s ea
ID: 2714201 • Letter: M
Question
MF Corp. has an ROE of 15% and a plowback ratio of 20%. If the coming year's earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 7%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What price do you expect MF shares to sell for in three years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
MF Corp. has an ROE of 15% and a plowback ratio of 20%. If the coming year's earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 7%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
a)
g = 15% * 0.2 = 3%
D1 = 2 * (1-0.2) = 1.6
price = 1.6/7%-3%
= 40
b)
price in three years = 1.6 * 1.03^3/7%-3% = 43.71
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