MF Corp. has an ROE of 12% and a plowback ratio of 50%. If the coming year\'s ea
ID: 2717347 • Letter: M
Question
MF Corp. has an ROE of 12% and a plowback ratio of 50%. If the coming year's earnings are expected to be $4 per share, at what price will the stock sell? The market capitalization rate is 14%. (Round your answer to 2 decimal places. Do not round intermediate calculations.)
Price:$_____
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.)
Price: ______
I got the 1st question right, but i can't get the 2nd one. someone asked the same question before but the 2nd question answer is now 35.12
1st part:
growth rate = 12% * 0.5 = 6%
D1 = 4 * (1-0.5) = 2
price = 2/14% - 6% = 25
a.MF Corp. has an ROE of 12% and a plowback ratio of 50%. If the coming year's earnings are expected to be $4 per share, at what price will the stock sell? The market capitalization rate is 14%. (Round your answer to 2 decimal places. Do not round intermediate calculations.)
Price:$_____
b.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.)
Price: ______
I got the 1st question right, but i can't get the 2nd one. someone asked the same question before but the 2nd question answer is now 35.12
1st part:
growth rate = 12% * 0.5 = 6%
D1 = 4 * (1-0.5) = 2
price = 2/14% - 6% = 25
Explanation / Answer
Price in 3 year = D1(1+g)^3 /(Rs-g)
= 2 (1 +.06)^3 / (.14-.06)
= 2 * 1.1910 / .08
= 2.382 / .08
= $ 29.775 per share (29.78)
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