Round your answer to 2 decimal places PE ratio b What would the PE ratio be if

Round your answer to 2 decimal places pe ratio b what

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Round your answer to 2 decimal places.) P/E ratio
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b. What would the P/E ratio be if the discount rate were 10%? (Round your answer to 2 decimal places.) P/E ratio Explanation: Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations. a. Earnings = DIV 1 = $4 Growth rate = g = 0 P 0 = $4 = $26.67 0.15 − 0 P/E = $26.67/$4 = 6.67 b. If r = 0.10 P 0 = $4 = $40 P/E increases to $40/$4 = 10.00. 0.10 Assume that market and book values are equal for current assets, current liabilities, and debt and other long-term liabilities.
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SIMPLIFIED BALANCE SHEET OF GOOD FORTUNES, INC. FOR MAY 31, 2010 (Millions of dollars) Current assets $ 7,290 Current liabilities $ 4,651 Plant, equipment and other long-term assets 17,630 Debt and other long-term liabilities 6,452 Shareholders’ equity 13,817 Total assets $ 24,920 Total liabilities and equity $ 24,920 Note: Shares of stock outstanding: 320 million. Book value of equity (per share): 13,817/320 = $43.18. The stock price is $77.50. a. Construct a market-value balance sheet from the above data. (Be sure to list the assets and liabilities in order of their liquidity. Enter your answers in millions rounded to 2 decimal places.) SIMPLIFIED BALANCE SHEET OF GOOD FORTUNES, INC. FOR MAY 31 (Millions of dollars) Current assets $ Current liabilities Plant, equipment and other long- term assets Debt and other long-term liabilities Growth opportunities Shareholders' equity
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Total assets $ Total liabilities and equity b. How much extra value shows up on the asset side of the balance sheet? (Enter your answer in millions rounded to 2 decimal places.) Extra value on the asset side $ million Explanation: The market value of shareholders' equity is found as the price per share ($77.50) multiplied by the number of shares outstanding (320 million), or $24,800,000,000. An additional $10,983,000,000 shows up on the asset side of the balance sheet ($24,800,000,000 − 13,817,000,000). Grandiose Growth has a dividend growth rate of 10%. The discount rate is 8%. The end-of-year dividend will be $5 per share. a. What is the present value of the dividend to be paid in year 1? Year 2? Year 3? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Present Value Year 1 $ Year 2 Year 3
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Explanation: a. DIV 1 = $5.00 PV = $5/1.08 = $4.63 DIV 2 = $5(1.10) = $5.50 PV = $5.50/1.08 2 = $4.72 DIV 3 = $5(1.10) 2 = $6.05 PV = $6.05/1.08 3 = $4.80 Computer Corp. reinvests 50% of its earnings in the firm. The stock sells for $55, and the next dividend will be $2.20 per share. The discount rate is 15%. What is the rate of return on the company’s reinvested funds? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return % Explanation: $55 = $2.20 g = 0.15 − $2.20 = 0.11 = 11.00% 0.15 − g $55 g = 0.11 = return on equity × plowback ratio = return on equity × 0.50 return on equity = 0.11/0.50 = 0.2200 = 22.00%
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The following are the cash flows of two projects: Year Project A Project B 0 −$270 −$270 1 150 170 2 150 170 3 150 170 4 150 a. If the opportunity cost of capital is 12%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.) Project Profitability Index A B b.
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