Answered: Wu of Troy, New York, has $5,000 that…

Name: Wu of Troy, New York, has $5,000 that he wants to invest in the stock
Uploaded: 2022-11-22T13:58:24.000Z
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Description: Wu of Troy, New York, has $5,000 that he wants to invest in the stock market. Ji is in college on a scholarship and does not plan to use the $5,000 or any dividend income for another five years, when he plans to buy a home. He is currently considerin

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.2IP

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Wu of Troy, New York, has $5,000 that he wants to invest in the stock market. Ji is in college on a scholarship and does not plan to use the $5,000 or any dividend income for another five years, when he plans to buy a home. He is currently considering a small company stock selling for $25 per share with an EPS of $1.25. Last year, the company earned $900,000, of which $250,000 was paid out in dividends.

What classification of common stock would you recommend to Ji?
Calculate the P/E ratio and the dividend payout ratio for this stock. Round your answers to the nearest whole number

c3.Given this information and your recommendation, would this stock be an appropriate purchase for Ji? Why or why not?

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