Ontario Ice Corporation has an expected profit margin of 10 percent,turnover ratio of 3,and a leverage ratio of 0.50.The firm expects an EPS of $3 next year and maintains a retention ratio of 60 percent.What should the stock sell for today if the required return is 15 percent?

Question

Quizplus · Accepted Answer

Compute ROE = 10%*3*0.5 = 15%,G = 60%*15% = 9%,D₁ = $3*(1-60%)= $1.20,Then P₀ = $1.2/(15%-9%)=$20

Ontario Ice Corporation Has an Expected Profit Margin of 10