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For the year just ended,N company had an earnings of$2 per share and paid a dividend of $1.2 0n its Stock.The growth rate in net income and dividend are both expected to be a constant 7 percent per year,indefinitely.N company has a Beta of 0.8,the risk-free interest rate is 6 percent,and the market risk premium is 8 percent.
P Company is very similar to N company in growth rate,risk and dividend payout rati0.It had 20 million shares outstanding and an earnings of$36 million for the year just ended.
The earnings will increase to$38.5 million the next year.
Requirement:
A.Calculate the expected rate of return on N company’S equity.
B.Calculate N Company’S current price—eaming ratio and prospective price-earning rati0.
C.Using N company’S current price-earning rati0,value P company’S stock price.
D.Using N company’S prospective price-earning rati0,value P company’S stock price.
参考答案