1. You forecast a company to have a ROE of 11%, a dividend payout ratio of 44%.
ID: 2735259 • Letter: 1
Question
1. You forecast a company to have a ROE of 11%, a dividend payout ratio of 44%. Currently the company has a price of $30 and $7 earnings per share. What is the company's PEG ratio based on market price?
2. Company A just paid a dividend of $2.00. The risk-free rate of return is 1% and the market risk premium is 12%. The beta of the company's stock is 1.20. If you know the company's dividend is growing at a constant rate of 7%, What is the intrinsic value of the company 3 years from today?
3.
Goog company has an EBIT*(1-tax) of $9,737, a depreciation of $1,851, change of NWC of $381, and a capital expenditure of $3,438. The growth rate of free cash flow is expected to be 17.68% for next two years. The beta of the firm is 1.19, the target capital structure of the firm is 6% debt 94% equity, the cost of debt is 3%, the tax rate is 40%, the market risk premium is 8% and the risk free rate is 1%. Given a comparable Price to Ebitda ratio of 14.15 and a market value of debt of $4,200, what is firm’s equity value using the FCFF approach?
$102,120
$214,190
$360,012
$138,792
A.$102,120
B.$214,190
C.$360,012
D.$138,792
Explanation / Answer
1.
Growth rate = ROE*(1-dividend payout ratio)=11%*(1-44%)=6.16%
P/E=30/7=4.2857
PEG=(P/E)/G=4.2857/6.16=0.6957 OR 0.70
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