An analyst is looking at a firm that has the following data:
§ An historical earnings retention rate of 40% that is projected to continue into the future.
§ A sustainable ROE of 12%.
§ The stock's beta is 1.2.
§ The nominal risk free rate is 6%.
§ The expected market return is 11%.
If the analyst thinks next year's earnings will be $4 per share, what value would they place on this stock?
The correct answer was A) $33.32.
Dividend payout = 1 - earnings retention rate = 1 - .4 = .6
RS = Rf + B(RM - Rf) = .06 + 1.2(.11 - .06) = .12
g = (retention rate)(ROE) = (.4)(.12) = .048
P/E = (div payout rate)/(k - g) = .6/(.12 - .048) = 8.33
Price = (E)(P/E) = (4)(8.33) = 33.32 | 
发表于 2006-4-27 14:57
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