Question

You are an analyst working for a mutual fund. Your job is to select stocks for the fund. You want to select only one of the following tech stocks to add into your current portfolio: Appscale, Bitwise, and Carbivore. All three stocks are similar along many metrics. They are all in the technology space and have been growing very fast over the past few years. However, it is hard to get all the information for those three stocks, and so far you have collected only the following relevant information to help you make the decision: Appscale is a tech firm that focuses on developing and integrating mobile apps. Reading through analyst reports and based on your own judgement, you think the cost of equity for Appscale is 12%. Appscale estimated earnings per share next year are $10. It pays all its earnings as dividends. Bitwise is a fintech company that is involved in Bitcoin and blockchain technology. Currently, Bitwise stock is trading at $100/share, with estimated earnings next year of $10/share. You read from their management disclosure and financial report that Bitwise retains 40% of their earnings for investments. Its reinvestment rate of return is 10%. Carbivore is a biotech firm that promotes and advocates sustainable food choices. The one period holding return is 10%.

What is the current price of Appscale?

a. $120/share
b. $83/share
c. Not enough information

Answer 1

To determine the current price of Appscale, we need additional information such as the dividend rate or the expected future earnings and a desired P/E ratio.

Step-by-step explanation:

To determine the current price of Appscale, we need additional information.

The cost of equity alone does not provide enough information to calculate the stock price.

We would need the dividend rate to calculate the stock price using the dividend discount model, or we would need the expected future earnings and a desired price-to-earnings (P/E) ratio to calculate the stock price using the P/E ratio method.