You believe the Gordon (constant) growth model is appropriate to value the stock of Reliable…

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You believe the Gordon (constant) growth model is appropriate to value the stock of Reliable…

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You believe the Gordon (constant) growth model is appropriate to value the stock of Reliable Electric Corp. The company had an EPS of $2 in 2008. The retention ratio is 0.60. The company is expected to earn an ROE of 14 percent on its investments, and the required rate of return is 11 percent. Assume that all dividends are paid at the end of the year. A. Calculate the companys sustainable growth rate. B. Estimate the value of the companys stock at the beginning of 2009. C. Calculate the present value of growth opportunities. D. Determine the fraction of the companys value that
You believe the Gordon (constant) growth model is appropriate to value the stock of Reliable Electric Corp. The company had an EPS of $2 in 2008. The retention ratio is 0.60. The company is expected to earn an ROE of 14 percent on its investments, and the required rate of return is 11 percent. Assume that all dividends are paid at the end of the year. A. Calculate the companys sustainable growth rate. B. Estimate the value of the companys stock at the beginning of 2009. C. Calculate the present value of growth opportunities. D. Determine the fraction of the companys value that comes from its growth opportunities.

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