A Company Has Sales of $220 Million

question 3

Essay

A company has sales of $220 million.These are expected to increase by 15 percent next year and 12 percent in the year after that.Over each of the next two years,the company expects to have a net profit margin of 8 percent,a payout ratio of 60 percent,and a constant 3 million shares of common stock outstanding.If the stock is expected to trade at a P/E ratio of 14 at the end of the second year and if the investor requires a 14 percent rate of return,what should the justified price of the stock be today?

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Definitions:

Negative Reinforcement

A behavioral concept where the removal of an unpleasant stimulus increases the likelihood of a behavior being repeated.

Psychological Factor

An element of human psychology that influences thoughts, feelings, and behaviors.

Etiology

The study of the causes or origins of disease or abnormal conditions, including factors contributing to the development of diseases.

Diathesis-Stress Model

A psychological theory that explains behavior as a result of a predispositional vulnerability together with stress from life experiences.