Estimate the value per share


A biotechnology firm reported earnings per share in 2007 of €4 and paid dividends per share of €0.70. Its earnings were expected to grow 15% from 2008 to 2012, but the growth is expected to decline each year after that to a stable growth rate of 5% in 2017. The payout ratio is expected to remain unchanged from 2008 to 2012 after which it would increase each year to reach 60% in steady state. The stock was expected to have a beta of 1.30 from 2008 to 2012, after which the beta would decline each year to reach 1.00 by the time the firm becomes stable. The government bond yields 6% and the return of the market portfolio is 12%. Assuming that the growth rate declines linearly and the payout ratio increases linearly from 2013 to 2017, estimate the value per share.

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Finance Basics: Estimate the value per share
Reference No:- TGS040277

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