MF Corp. has an ROE of 14% and a plowback ratio of 40%. If the coming year\'s ea
ID: 2758538 • Letter: M
Question
MF Corp. has an ROE of 14% and a plowback ratio of 40%. 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 12%. (Round your answer to 2 decimal places. Do not round intermediate calculations.)
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 14% and a plowback ratio of 40%. 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 12%. (Round your answer to 2 decimal places. Do not round intermediate calculations.)
Explanation / Answer
a) Price of share = $ 18.75
Exp Div = Exp EPS x ((1-plow-back ratio) = 2 x (1-0.4) = 1.2 Growth rate = (plow-back ratio) x (ROE) = 0.4 x 0.14 = 0.056 Using the dividend growth model: P = ExpDiv/(r-g) = 1.2/(0.12-0.056) = $18.75Related Questions
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