Digby's balance sheet has $80,975,000 in equity. Further, the company is expecting net income of 4,000,000 next year, and also expecting to pay $5,000,000 in dividends. If there is no new stock issued what will be Digby's book value?
Computation of book value
Computing Intrinsic Price-To-Book Ratio
A firm with a book value of $15.60 share and 100 percent dividend payout is expected to have a return on common equity of 15 percent per year indefinitely in the future. Its cost of equity is 10 percent.
a) Calculate the intrinsic price-to-book ratio
b) Suppose this firm announced that it was reducing its payout to 50 percent of earnings in the future. How would this affect your calculation of the price-to-book ratio?