Nunavut Beach Resort has a net income of $330,000 on sales of $2,200,000.The firm has total assets of $1,600,000,a book value of equity of $1,200,000,and a dividend payout ratio of 65 percent.What is the firm's current market value if the required return is 21 percent?

Question

Quizplus · Accepted Answer

Retention ratio = 1-65% = 35%,ROE = $330,000/$2,200,000*$2,200,000/$1,600,000*$1,600,000/1,200,000 = 27.5% g = 35%*27.5% = 9.625%,D₁ = ($330,000*65%)*(1+9.625%)= $235,145.625, then P₀ = $235,145.625/(21%-9.625%)= $2,067,214.29

Nunavut Beach Resort Has a Net Income of $330,000 on Sales