Explore BrainMass
Share

Share price and investment decisions of Zeus Solutions

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Zeus Solutions (ZS), an online advertising company, expects next year's after tax earnings to be $20 per share. Its business is still expanding. It plows back 80% of its earnings. The ROE on its new investments is 15%. Its cost of capital is 12.5%.

(a) What is the share price of Zeus Solutions? What is its PVGO (Present Value of Growth Company)?

(b) Suppose that a new competitor comes in and cuts Zeus Solutions' ROE to 12%. How would this impact the company's investment decisions and its share price? Explain why.

© BrainMass Inc. brainmass.com March 22, 2019, 3:45 am ad1c9bdddf
https://brainmass.com/business/finance/share-price-investment-decisions-zeus-solutions-639161

Solution Summary

Share price of the company and then the present value is calculated. Afterwards return on equity is compared with cost of equity.

$2.19