70.2K

Verified Solution

Link Copied!

You are trying to value LMO common stock. Comparable firms in the same industry have an average P/E = 19. Comparable firms also have an average dividend yield = 1.6%. LMO's forward EPS = $3.77. LMO pays 25% of its earnings as cash dividends. LMO expects a 1% growth rate in EPS and dividends forever. - a. What is the stock value using the average P/E ratio as a multiplier? b. Using the average dividend yield as a multiplier, what is the stock value? c. Use the dividend discount model and required return k = 14% to estimate the value of one share of LMO common stock. d. Assume LMO's forward dividend yield = the industry average. Use the dividend discount model to compute the required return to LMO stock. Hint, solve the dividend discount model equation for k.

You are trying to value LMO common stock. Comparable firms in the same industry have an average P/E=19. Comparable firms also have an average dividend yield =1.6%. LMO's forward EPS =$3.77. LMO pays 25% of its earnings as cash dividends. LMO expects a 1% growth rate in EPS and dividends forever. a. What is the stock value using the average P/E ratio as a multiplier? b. Using the average dividend yield as a multiplier, what is the stock value? c. Use the dividend discount model and required return k=14% to estimate the value of one share of LMO common stock. d. Assume LMO's forward dividend yield = the industry average. Use the dividend discount model to compute the required return to LMO stock. Hint, solve the dividend discount model equation for k

Answer & Explanation Solved by verified expert

See Answer