sorry but this schweser exam is driving me mental in Q99, why can’t you use P = Do(1+g)/r - (b x ROE) where Do = 66/40 = 1.65 So P = 1.65(1.0605)/0.15 - (0.55 x 0.11) but if you do it gives you a different answer to their method, which uses: P = E1(1 - b)/r - (b x ROE)
DPS=66/40 = 1.65 r = 15% ROE = 146/1329 = .1099 b = (146-66)/146 = .5479 g = .5479 * .1099 = 0.06 1.65 / (.15 - .06) = 18.33 it is forecasted net income - so next years income is provided. You do not need to * 1+g.
yes but isn’t the dividend the current dividend? DPS=66/40 = 1.65 = Do ?
ROE is based on E1… so kind of the g is already been taken. kind of funky wording / splitting hairs it looks like.
Bad question I think They’re basically saying P = Do/(r - g) if g = b x Forecast ROE