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 $12.50, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 21% 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 16%, and the company is expected to start paying out 45% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 20% per year.A. What is your estimate of DEQS’s intrinsic value per share?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?C. What do you expect to happen to price in the following year?D. What is your estimate of DEQS’s intrinsic value per share if you expected DEQS to pay out only 25% of earnings starting in year 6?
1 answer:
You might be interested in
Answer:
EPQ = 1982
maximum inventory = 1090
average inventory = 545
order cycles = 44.04
total cost of managing = $2180
Explanation:
given data
monthly demand = 900
annual demand = 12 × 900 = 10800
Production averages = 100 units
Holding costs = $2.00
setup cost = $200.00
company operates= 240 days
solution
daily usage =
daily usage = 45
we find here EPQ
EPQ = ×
...........1
EPQ = ×
EPQ = 1982
and
maximum inventory = × daily production - daily use
maximum inventory = × (100-45)
maximum inventory = 1090
and
average inventory =
average inventory =
average inventory = 545
and
order cycles =
order cycles =
order cycles = 44.04
and
total cost of managing =
total cost of managing =
total cost of managing = 2179.81 = $2180