23. value: 3.00 points The market consensus is that Analog Electronic Corporatio

Question

23. value: 3.00 points The market consensus is that Analog Electronic Corporation has an ROE = 9%, has a beta of 1.30, and plans to maintain indefinitely its traditional plowback ratio of 1/3. This year's earnings were $2.90 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 11%, and T-bills currently offer a 5% return. a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Price b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) P/E Ratio Leading Trailing c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) PVGO

Explanation / Answer

Cost of Equity = 5% + 1.30 * (11% - 5%)

Cost of Equity = 12.8%

g = 9% * 1/3 = 3%

D1 = E0 * (1 + g) * (1 - b)

D1 = 2.90 * 1.03 * 2/3

D1 = 1.99

P0 = D1/ (Cost of Equity - Growth Rate)

P0 = 1.99/ (12.8% - 3%)

P0 = $20.32

Part 2

Leading P/E = P0/ E1

Leading P/E = 20.32/ (2.90 * (1 + 3%))

Leading P/E = 6.80

Trailing P/E = P0/ E0

Trailing P/E = 20.32/ 2.90

Trailing P/E = 7.01

Part C

PVGO = P0 - E1/ Cost of Equity

PVGO = 20.32 - 2.987/12.8%

PVGO = -$3.02

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