eBook Problem 11-03 An investor with a required return of 15 percent for very risky...
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eBook Problem 11-03 An investor with a required return of 15 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: B $ 1.90 $0.90 US Firm Current earnings Current dividend Expected annual growth rate in dividends and earnings Current market price $3.30 $2.40 3% $6.80 $ 6.70 -3% 5% $ 13 $ 27 $ 42 a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. c. If the appropriate P/E ratio is 10, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ C. If the appropriate P/E ratio is 10, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 4, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $
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