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

question 90

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.

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Definitions:

Altered Check

A negotiable instrument that has been unlawfully modified in order to benefit someone other than the intended payee, typically involving change to the amount or payee name.

Good Faith

Acting with honesty and integrity without any intention to deceive or defraud in a transaction or contract.

Breach

The violation or infringement of a law, obligation, contract, or trust.

Ordinary Care

The degree of care that a reasonably prudent person would exercise under similar circumstances to avoid harm to themselves or property.