The market consensus is that Analog Electronic Corporation has an ROE = 8% and a beta of 1.40. It plans to maintain indefinitely its traditional plowback ratio of 2/4. This year’s earnings were $3.0 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 15%, and T-bills currently offer a 5% return.
a.Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places)
b.Suppose your research convinces you Analog will announce momentarily that it will immediately change its plowback ratio to 2/4. Find the intrinsic value of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)