If a company has a current stock price of $50, an EPS of $1.75/share; EPS growth rate of 20% and the investors rate of return is 13%, calculate the cash cow price.
A) $13.46
B) $13.86
C) $14.26
D) $14.66
E) $15.06

Question

Quizplus · Accepted Answer

The cash cow price is calculated as the EPS divided by the difference between the investor's rate of return and the EPS growth rate. In this case, the EPS is $1.75, the investor's rate of return is 13%, and the EPS growth rate is 20%. Therefore, the cash cow price is $1.75 / (0.13 - 0.20) = $13.46.

If a Company Has a Current Stock Price of $50