Question

16. Batt’s Industries had an EPS of $5.00 per share this year, pays a dividend of $2.20 per share and is expected to pay this amount indefinitely. If Batt’s equity cost of capital is 11%, calculate Batt’s expected stock price. (1 mark) 2.20/0.11 = 20 17.

If Tom’s Industries had an EPS of $5.00 per share this year, pays a dividend of $2.20 per share and the dividend is expected to grow by 5% per year indefinitely. If Tom’s equity cost of capital is 11%, calculate Tom’s expected stock price. (1 mark) 2.20*1.05/0.11-0.05 = 38.50 18.

From questions 19 and 20 above, calculate the price earning ratio (P/E) for both Batt’s and Tom’s.

Answer 1

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