You probably won’t see questions like this (with answers very close to each other) on the exam…, but try this question anyways, and see if you can get the exact answer.
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Company has a book value of $23.00 per share. Return on new investments (ROE) is 14%, and its required return on equity is 12%. The dividend payout ratio is 60%.
1) Calculate the value of the stock using the Gordon growth model.
A) $30.19
B) $30.00
C) $30.45
Show your calculation.
2) Calculate the present value of the firm’s expected economic profit.
A) $7.19
B) $7.00
C) $7.45
Show your calculation.作者: zbird2134 时间: 2013-4-16 12:16
1 - A
23*.14*.6 = 1.932
.12-(1-.6) = .064
1.932/.064 = 30.1875
No idea how i would get answer 2…had to look at Fritsie
