You are an analyst working for a mutual fund. Your job is to select stocks for the fund. You want to select only one of the following tech stocks: Appscale, Bitwise, and Carbivore to add into your current portfolio. All three stocks are similar along many metrics. They are all in the technology space and has been growing very fast over the past few years. However, it is hard to get all the information for those three stocks. And so far you have collected the following relevant information to help you make the decision.
Appscale is a tech firm that focus on developing and integrating mobile apps. Reading through analyst reports and based on your own judgement, you think the cost of equity for Appscale is 12%. Appscale estimated earnings per share next year are $10. It pays all its earnings as dividends.
Bitwise is a fintech company that is involved in Bitcoin and blockchain technology. Currently, Bitwise stock is trading at $100/share, with estimated earnings next year of $10/share. You read from their management disclosure and financial report that Bitwise retains 40% of their earnings for investments. Its reinvestment rate of return is 10%.
Carbivore is biotech firm that promote and advocates sustainable food choices. The one period holding return is 10%.
What is the current price of Appscale?
(a) $120/share
(b) $83/share
(c) Not enough information