Business, 27.11.2019 19:31 julesR1987
Suppose that the consensus forecast of security analysts of your favorite company is that earnings next year will be e1 = $5.00 per share. suppose that the company tends to plowback 50% of its earnings and pay the rest as dividends. if the chief financial officer (cfo) estimates that the company's growth rate will be 8% from now onwards, answer the following questions.
if your estimate of the company's required rate of return on its stock is 10%, what is the equilibrium price of the stock?
suppose you observe that the stock is selling for $50.00 per share, and that this is the best estimate of its equilibrium price. what would you conclude about either (i) your estimate of the stock's required rate of return; or (ii) the cfo's estimate of the company's future growth rate?
suppose your own 10% estimate of the stock's required rate of return is shared by the rest of the market. what does the market price of $50.00 per share imply about the market's estimate of the company's growth rate?
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