Company JUK has a ROE of 25% and the company will not pay any dividend for the n

Question

Company JUK has a ROE of 25% and the company will not pay any dividend for the next 3 years. It is estimated that the company will pay $2 dividend per share after three years and then to level off to 5% per year forever.  

The company has a beta of 2. Assume the risk-free interest rate is 4%, and the market risk premium is 8%.

1. What is your estimate of the fair price of a share of the stock?

2. If the market price of a share is equal to this intrinsic value, what is the P/E ratio?

3.What do you expect its price to be 1 year from now? Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?

Explanation / Answer

4) Company HTA had a free cash flow for the firm (FCFF) of $1,500,000 last year. It is expected the FCFF will keep a sustainable growth rate of 5%. The company has 2 million common shares outstanding. In addition, the following information has been gathered: Capital structure: D/E=0.2:0.8, Market value of Debt: VD =$5,000,000; Required return on equity: kE =15% Cost of debt before tax =6%, Tax rate: tc =25%; Determine the fair value of HTA stock.

5) Company JUK has a ROE of 25% and the company will not pay any dividend for the next 3 years. It is estimated that the company will pay $2 dividend per share after three years and then to level off to 5% per year forever.
The company has a beta of 2. Assume the risk-free interest rate is 4%, and the market risk premium is 8%.
1. What is your estimate of the fair price of a share of the stock?

2. If the market price of a share is equal to this intrinsic value, what is the P/E ratio?

3. What do you expect its price to be 1 year from now? Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?

6.MicroSense, Inc., paid $2 dividends per share last year. It is estimated that the company

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