The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next fiveyears. Its latest EPS was $15.50, all of which was reinvested in the company. The firm's expected ROE for the next five years is 19% peryear, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investmentsis expected to fall to 14%, and the company is expected to start paying out 35% of its earnings in cash dividends, which it will continueto do forever after. DEQS's market capitalization rate is 22% per year.a. What is your estimate of DEQS's intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2decimal places.)✔Answer is complete and correct.$Intrinsic valueb. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Roundyour dollar value to 2 decimal places.)Price will40.51✓risePrice in one yearAnswer is complete and correct.22✔% per year until year 6.✓byBecause there is no dividend, the entire return must be in capital gains✔ Answer is complete and correct.$ 49.42 c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.)✔Answer is complete and correct.$ 60.30✔Price in two yearsd. What is your estimate of DEQS's intrinsic value per share if you expected DEQS to pay out only 15% of earnings starting in year 6?(Do not round intermediate calculations. Round your answer to 2 decimal places.)X Answer is complete but not entirely correct.Intrinsic value$ 15.50 X

Intrinsic Value of Share: The intrinsic value of a share implies the fair value of a share relies on…

The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $15.50, all of which was reinvested in the company. The firm's expected ROE for the next five years is 19% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 14%, and the company is expected to start paying out 35% of its earnings in cash dividends, which it will continue to do forever after. DEQS's market capitalization rate is 22% per year. a. What is your estimate of DEQS's intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. $ Intrinsic value Price will b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) 40.51 rise Price in one year Answer is complete and correct. 22✔% per year until year 6. ✓by Because there is no dividend , the entire return must be in capital gains ✔ Answer is complete and correct. $ 49.42

The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $15.50, all of which was reinvested in the company. The firm's expected ROE for the next five years is 19% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 14%, and the company is expected to start paying out 35% of its earnings in cash dividends, which it will continue to do forever after. DEQS's market capitalization rate is 22% per year. a. What is your estimate of DEQS's intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. $ Intrinsic value Price will b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) 40.51 rise Price in one year Answer is complete and correct. 22✔% per year until year 6. ✓by Because there is no dividend , the entire return must be in capital gains ✔ Answer is complete and correct. $ 49.42

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $15.50, all of which was reinvested in the company. The firm's expected ROE for the next five years is 19% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 14%, and the company is expected to start paying out 35% of its earnings in cash dividends, which it will continue to do forever after. DEQS's market capitalization rate is 22% per year.
The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5.80, all of which was reinvested in the company. The firm's expected ROE for the next four years is 24% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm's ROE on new investments is expected to fall to 23% per year. GG's market capitalization rate is 23% per year. a. What is your estimate of GG's intrinsic value per share? (Round your answer to 2 decimal places.) GG's intrinsic value b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? Price should at a rate of % over the next year.
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