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

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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
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