Q1: Calculate V/B Ratio at the start of the year 2016 for Nice, Inc, with $1,000 of book value of common equity and a cost of equity capital equal to 12 percent. You forecast that the firm will earn ROCE of 18 percent until year 2020, when the firm will start earning ROCE equal to 12 percent. The company pays no dividends and will not engage in any stock transactions.
Q2: Calculate the Corporation A's value-to-book ratio at the start of 2016. Assume the firm's book value of common equity is $100, and the cost of equity capital equal to 8 percent. Further assume, the firm will earn ROCE of 14 percent from 2016 until year 2021, when the firm will start earning ROCE equal to 8 percent. The company pays no dividends and will not engage in any stock transactions.
Q3: Investors have invested $20,000 in common equity in a company. The investors expect that the company will reinvest all income back into projects. The company is forecasted to earn $6,000 the first year, $5,000 the second year, $4,750 the third year, and $5,442 each year after the third year. The company's stock price at middle of first year is $15 per share. If the company has 3,500 shares outstanding and the risk-free rate of interest is 8%, calculate the price differential for this company.