Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. company a is considering going public and is tryin

Company A is considering going public and is trying to determine its value based on its...

90.2K

Verified Solution

Question

Finance

Company A is considering going public and is trying to determineits value based on its future dividend payments. Their current EPSis $5.00, and over the next 5 years they anticipate a payout ratioof 20% and ROE of 15%. During this high-growth period, their betais estimated at 1.20, with a risk-free rate of 1.0% and a marketrisk premium of 5%. At the end of the 5-year high growth period,they estimate their stable beta will be 1.05, with ROE of 12% andgrowth of 2.0%. (Risk-free rate and market risk premium will remainthe same.) Using this information, determine the per-share valuefor the company and show the calculation in details.

Answer & Explanation Solved by verified expert
4.1 Ratings (732 Votes)
Payout ratio 20 Retention ratio R 1 Payout ratio 1 20 80 ROE 15 Hence growth rate in high growth period g1 R x ROE 80 x 15 12 Also cost of equity in this period Rf Beta x market risk premium 1 120 x 5 7 Please see the table below Please be guided by the second column titled Linkage to understand the mathematics All financials    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Based on dynamics, describe the behavior of a phase portrait of a n-body problem.

Advance Math
Q

After performing a spread plate method on a bacterial specimen, the culture was incubated for 48...

Biology
Q

4 A 25 ohm resistor a 55 ohm resistor and a 75 ohm resistor are...

Physics
Q

allowable deductions for tax purpises?

Accounting
Q

Every part that has been filled in has been already marked as correct. I need...

Accounting
Q

Part B (3 marks) XYZ Ltd purchased a delivery van costing $64 000 on 1...

Accounting
Q

Demarco and Janine Jackson have been married for 20 years and have four children (no...

Accounting
Q

all interest on United States saving bonds is tax-exempt

Accounting
Q

The following details are provided by a manufacturing company: Calculate the payback period for the...

Accounting
Q

Brantley received 300 shares of Cranston Corporation stock from his uncle as a gift on...

Accounting
Q

Please help if my answers are correct. Take me to the text...

Accounting
Q

A project will add value when _______ ...

Finance