contestada

A firm is expected to produce earnings next year of $3 per share. It plans to reinvest 25% of its earnings at 20%. If the cost of equity is 11%, what should be the value of the stock?
A. $70.
B. $37.50.
C. $66.67.
D. $27.27.

Respuesta :

abiolataiwo2015

Answer:

B.37.50

Explanation:

Calculation for what should be the value of the stock

First step is to calculate g

g = .25 × .20

g= .05

Second step is to calculate D1

D1 = $3(1 - .25)

D1= $2.25

Last step is to calculate what should be the value of the stock

P0 = $2.25/(.11 - .05)

P0 = $37.50

Therefore what should be the value of the stock is $37.50

Otras preguntas