Please help me thank you soo much :) The market consensus is that Analog Electro
ID: 2792217 • Letter: P
Question
Please help me thank you soo much :)
The market consensus is that Analog Electronic Corporation has an ROE-996, has a beta of 1.30, and plans to maintain indefinitely its traditional plowback ratio of 1/3. This year's earnings were $2.90 per share The annual dividend was just paid. The consensus estimate of the coming year's market return is 11%, and T-bills currently offer a 5% return. a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Price b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) P/E Ratio Leading Trailing c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a your answer to 2 decimal places. Omit the "S" sign in your response.) NGC)Explanation / Answer
Ks = Rf + [(Rm) – Rf ]
= .05 + 1.3 (.11 – .05)
= 12.8%
g = ROE x plowback ratio
= 9% x 1/3 = 3%
D1 = E0 (1 + g) (1 – plowback ratio)
= 2.9 (1 + .03) (1 – 1/3)
= $1.991
P0 = D1 / (Ks – g)
= 1.991 / (0.128– 0.03)
= $20.31
2
g = ROE (1 – D1 / EPS1)
0.03 = .09 (1 – 1.991 / EPS1)
0.03 = 0.09-(0.09*1.991/ EPS1)
0.03-0.09 = - 0.17919/ EPS1
EPS1= 0.17919/0.06
= $2.9865
Leading P0/E1 = 20.31 / 2.9865
= 6.80
Trailing P0/E0 = 20.31 / 2.9
= 7.0034
3
PV of growth opportunities = P0 – E1 / Ks
= 20.31 – 2.9865 / .128
= –$3.022