37) Miltmar Corporation will pay a year-end dividend of $5, and dividends therea
ID: 2764782 • Letter: 3
Question
37) Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter are expected to grow at the constant rate of 5% per year. The risk-free rate is 6%, and the expected return on the market portfolio is 12%. The stock has a beta of 0.75.
Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What is the intrinsic value of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
41) The market capitalization rate on the stock of Aberdeen Wholesale Company is 12%. Its expected ROE is 14%, and its expected EPS is $3. If the firm's plowback ratio is 50%, its P/E ratio will be _________.
a. 6.67 b.16.67 c. 20.00 d.10.00
44) The market capitalization rate for Admiral Motors Company is 7%. Its expected ROE is 10% and its expected EPS is $5. If the firm’s plowback ratio is 60%.
b.
what will be its P/E ratio? (Do not round intermediate calculations.)
P/E ratio
a. $18.14 b. $7.07 c. $16.14 d. $17.14
61) Todd Mountain Development Corporation is expected to pay a dividend of $2 in the upcoming year. Dividends are expected to grow at the rate of 9% per year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 19%. The stock of Todd Mountain Development Corporation has a beta of 0.60. Using the constant-growth DDM, the intrinsic value of the stock is _________.
a. 22.22 b. 9.09 c. 50.00 d. 3.60
a.Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
Sol to q 37(a)
Market cap rate(k) =rf+ beta(km-rf)
=.06+ .75(.12-.06)
= .105
Sol to q 37(b)
Intrinsic value of stock= D1/ (k-g)
= 5/ (.105-.o5)
= 90.90
Sol to q 41
In order to calculate P/E ratio ,first we need to calculate growth rate & price of share
G=plow back ratio* ROE
= .5* .14
= .07
Price= D1/ (mk- g) D1= (1- plowback ratio)* EPS
= (1-.5)* 3
= 1.5
= 1.5/ (.12-.07)
=30
P/E = PRICE/ EXPECTED EPS
= 30/ 3
= 10
SO ans would be d.
Sol to q 44(a)
G= plowback ratio* ROE
=.6*.10
= .06
Sol to q 44(b)
In order to cal P/E , first cal price
Price= D1/ (mk- g) D1= (1- plowback ratio)* EPS
= (1-.6)* 5
= 2.0
= 2.0/ (.07-.06)
=20
P/E = PRICE/ EXPECTED EPS
= 20/ 5
= 4
Sol to q 61
Market cap rate(k) =rf+ beta(km-rf)
=.04+ .6(.19-.04)
= .13
Intrinsic value of stock= D1/ (k-g)
= 2/ (.13-.09)
= 50
So ans would be c
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