You have been given the following information on AD Corporation,and you expect this information to hold for the next five years: ROA = 20%; debt/equity ratio = 0.5; interest rate on debt = 10%; dividend payout ratio = 20%.After five years have passed,you expect AD's growth rate to be 10%.The annualized six-month T-bill rate is 7%,current EPS is $4.00,and the stock's beta is 1.25.Assume a market rate of return of 15%.
a. Using the dividend-discount model, estimate the intrinsic value of the stock.
b. The company's CFO is considering increasing his payout ratio to 40% for the first five years. Advise him by estimating the value of the stock with the new payout ratio.
c. The CFO is also considering increasing the debt/equity ratio to one. Estimate the value of the stock with the new ratio.

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The Answer of You have been given the following information on AD Corporation,and you expect this information to hold for the next five years: ROA = 20%; debt/equity ratio = 0.5; interest rate on debt = 10%; dividend payout ratio = 20%.After five years have passed,you expect AD's growth rate to be 10%.The annualized six-month T-bill rate is 7%,current EPS is $4.00,and the stock's beta is 1.25.Assume a market rate of return of 15%.
a. Using the dividend-discount model, estimate the intrinsic value of the stock.
b. The company's CFO is considering increasing his payout ratio to 40% for the first five years. Advise him by estimating the value of the stock with the new payout ratio.
c. The CFO is also considering increasing the debt/equity ratio to one. Estimate the value of the stock with the new ratio.

You Have Been Given the Following Information on AD Corporation,and