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Homework Help: financial management

Posted by Trudy on Monday, July 11, 2011 at 12:23am.

your investment advisor has sent you three reports for a young growing company named vegas chips incorporated. these three reports depict the company as speculative but each one poses different projections of the companys future growth in earnings and dividends. all three reports show that vegas chips earned$1.20 per share in the year ended previously. there is consensus that a fair rate of return to investors for this common stock is 14% and that management expects to consistently earn 15% return on the book value of equity (ROE = 15%. the analyst who produced report c makes the assumption that vegas chips will enter the national market but expects a high level of initial excitement for the product that is then followed by growth at a constant rate. earnings and dividend is expected to grow at a rate of 50% over the next year, 20% for the following two years and then revert back to a constant growth of 9% thereafter. management is expected to elect to pay out 40% of the recently reported earnings to current stockholders. based on this report what model can you use to value a share of common stock in vegas chip and what is the value of the stock?

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