Question

The market analysts estimate an ROE of 10% for Gorge Inc. Gorge has a retention ratio of 60%. In the last year, its EPS was $5. When the T-bill rate is 4%, the expected market return in the coming year is 11%, and its beta is 1. 1) Which price should the stock trade at? 2) What is the forward P/E ratio? 3) Calculate PVGO. 4) When Gorge decreases its plowback ratio to 10%, how would the stock price be affected? 5) Compare the stock price after decreasing its plowback ratio to 10% to the stock price with a plowback ratio of 60%. Why does the stock price change?

Name: the market analysts estimate an roe of 10 for gorge inc gorge has its retention ratio of 60 in the last year its eps was 5 when t bill rate is 4 the expected market return in the coming year 61617
Uploaded: 2023-06-13T01:49:38-08:00
Duration: 11 min 14 s
Channel: Akash M
Description: the market analysts estimate an roe of 10 for gorge inc gorge has its retention ratio of 60 in the last year its eps was 5 when t bill rate is 4 the expected market return in the coming year 61617

          The market analysts estimate an ROE of 10% for Gorge Inc. Gorge has a retention ratio of 60%. In the last year, its EPS was $5. When the T-bill rate is 4%, the expected market return in the coming year is 11%, and its beta is 1.

1) Which price should the stock trade at?
2) What is the forward P/E ratio?
3) Calculate PVGO.
4) When Gorge decreases its plowback ratio to 10%, how would the stock price be affected?
5) Compare the stock price after decreasing its plowback ratio to 10% to the stock price with a plowback ratio of 60%. Why does the stock price change?

Added by Cody S.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Solved by Expert Akash M

06/13/2023

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6)/(0.11 - 0.06) = $50 Show more…

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The market analysts estimate an ROE of 10% for Gorge Inc. Gorge has a retention ratio of 60%. In the last year, its EPS was $5. When the T-bill rate is 4%, the expected market return in the coming year is 11%, and its beta is 1. 1) Which price should the stock trade at? 2) What is the forward P/E ratio? 3) Calculate PVGO. 4) When Gorge decreases its plowback ratio to 10%, how would the stock price be affected? 5) Compare the stock price after decreasing its plowback ratio to 10% to the stock price with a plowback ratio of 60%. Why does the stock price change?