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:

Embryonic Development

The process by which the embryo forms and develops, starting from fertilization through to the fetal stage.

Bone Cells

Specialized cells that compose bone tissue, responsible for the formation, maintenance, and remodeling of bones.

Embryonic Period

A critical phase during early pregnancy when the basic structures and organs of the organism are formed.

Major Organs

Essential bodily organs that are necessary for survival, such as the heart, lungs, liver, and kidneys.