Low Tech Chip Company Is Expected to Have EPS of $2.50

question 100

Multiple Choice

Low Tech Chip Company is expected to have EPS of $2.50 in the coming year.The expected ROE is 14%.An appropriate required return on the stock is 11%.If the firm has a dividend payout ratio of 40%, the intrinsic value of the stock should be

• A)$22.73.
• B)$27.50.
• C)$28.57.
• D)$38.46. g = 14% *0.6 = 8.4%; Expected DPS = $2.50(0.4) = $1.00; P = 1/(.11 - .084) = $38.46.

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