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Question

Lister Inc. is a stable growth, publicly traded company, expected to grow 2% a year in perpetuity. It is expected

to pay out 60% of its earnings as dividends next year and has a cost of equity of 8%.

a. Estimate the "intrinsic" PE ratio for the company.

8


9


10


11

b. The company has 100 million shares and 10 million management options outstanding; the options have a value of $5/option. If the firm is expected to earn $ 100 million in net income next year, estimate the fair value per share, based upon the PE ratio you estimated in part a.

9.5


8.5


7.5


6.5

Top Answer

a. The "intrinsic" PE... View the full answer

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