The writer is very fast, professional and responded to the review request fast also. Thank you.
The question is over the topic of “stock valuation”.
Your company currently has a book equity per share of $95. Analyst forecasts state that your return on equity (ROEE) will be 16 percent for the next 5 years (up until t=5), and 4 percent (ROEL) thereafter. Assume that the expected return on equity (the discount rate) for your stock is 5.1 percent. Also assume that these numbers are independent of your dividend policy.
a) Your plan is to plow back 90 percent of your earnings (bE=0.90) in the early period (up until t=5) and 20 percent of your earnings (bL=0.20) in the late period (after t=5). Given this dividend policy, what is the price of your stock today? Show all work.
b) Suppose you have control over your dividend policy. What early-period and late-period plowback ratios should you choose to maximize the price of your stock today?
(Hint: Use Solver in Excel to solve for the early-period and late-period plowback ratios. Suppose your price calculation is in cell B16, and your early and late period plowback ratios are in cells B3 and B4. Set “B16” equal to “max” by changing variable cells “B3,B4”. You also have to constrain B3 and B4 so that they are between 0 and 1, inclusive.)
Show more
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more