Question

On December 31, 2019, forecasting earnings per share of $1.30 for 2020 and $2.50 for 2021....

On December 31, 2019, forecasting earnings per share of $1.30 for 2020 and $2.50 for 2021. The cost of equity capital is 9%. the firm does not pay dividends.

Assume that the abnormal earnings growth (AEG) forecasted after 2021 will continue at the same level (as in 2021) into the future. Calculate the intrinsic value per share in early 2020.

Homework Answers

Answer #1

Intrinsic value = Present value of Future cash flows

Intrinsic Value (Po) =

where, CF1, CF2 and CF3= Cash Flow at year 1, year 2 and year 3

Ke = Cost of equity = 9%

Intrinsic value (Po) =

Intrinsic Value = $1.1926 + $2.1042 + $23.38

Intrinsic value of share = $26.6768

Incase of any doubt, please comment below. i would be happy to help.

Please upvote the answer if it was of help to you.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
GROUPER Ltd. had earnings per share of $4 as at December 31, 2015, but paid no...
GROUPER Ltd. had earnings per share of $4 as at December 31, 2015, but paid no dividends. Earnings were expected to grow at 16.3 percent per year for the following five years. GROUPER Ltd. will start paying dividends for the first time on December 31, 2020, distributing 50 percent of its earnings to shareholders. Earnings growth will be 5 percent per year for the next six years (that is, from January 1, 2021 through to December 31, 2026). Starting on...
Flatfish Limited reported the following items in shareholders’ equity on December 31, 2020: Share capital: Preferred...
Flatfish Limited reported the following items in shareholders’ equity on December 31, 2020: Share capital: Preferred shares, $5 cumulative dividend, 162,000 shares issued    and outstanding $16,200,000 Share capital: Common shares, 708,000 issued and outstanding 28,320,000 Retained earnings 27,480,000 A) No dividends were declared in 2018 or 2019; however, in 2020, cash dividends of $5,226,600 were declared. Calculate how much would be paid to each class of shares. Preferred Common Total 2018 arrears 2019 arrears 2020 $Enter a total amount. $Enter...
At December 31, 2021 and 2020, P Co. had 50,000 shares of common stock and 5,000...
At December 31, 2021 and 2020, P Co. had 50,000 shares of common stock and 5,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2021 or 2020. Net income for 2021 was $500,000. For 2021, basic earnings per common share amounted to: Group of answer choices $9.50. $5.00. $9.00. $10.00.
Balance sheets for Johannesson&Johannesson for 2021 and 2020 are presented below. Johannesson&Johannesson reinvests all earnings for...
Balance sheets for Johannesson&Johannesson for 2021 and 2020 are presented below. Johannesson&Johannesson reinvests all earnings for future growth (and hence pays no dividends). Balance Sheets ($ in thousands) December 31 2021 2020 Assets: Cash $ 65 $ 50 Accounts receivable 125 145 Short-term investments 60 50 Inventory 250 170 Property, plant, and equipment (net) 700 625 $ 1,200 $ 1,040 Liabilities and Shareholders’ Equity: Current liabilities $ 290 $ 235 Bonds payable 185 185 Paid-in capital 475 475 Retained earnings...
Rearden Metals expects to have earnings this coming year of $2.50 per share. Rearden plans to...
Rearden Metals expects to have earnings this coming year of $2.50 per share. Rearden plans to retain all of its earnings for the next year. For the subsequent three years, the firm will retain 50% of its earnings. It will ten retain 25% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 20% per year. Any earnings that are not retained will be paid out as dividends....
Consider the following information which relates to a given company: Item 2019 Value Earnings Per Share...
Consider the following information which relates to a given company: Item 2019 Value Earnings Per Share $6.96 Price Per Share (Common Stock) $41.68 Book Value (Common Stock Equity) $56 Million Total Common Stock Outstanding 2.3 Million Dividend Per Share $3.73                                                                                Analysts expect that the company could maintain a constant annual growth rate in dividends per share of 6% in the future, or possibly 9% for the next 2 years and 7% thereafter. In addition, it is expected that the...
The following is the shareholders’ equity section of Ayayai Corp. at December 31, 2020: Preferred shares,a...
The following is the shareholders’ equity section of Ayayai Corp. at December 31, 2020: Preferred shares,a authorized 100,000 shares; issued 33,000 shares $ 1,155,000 Common shares (unlimited authorized, 51,000 issued) 1,275,000 Contributed surplus 107,000 Total paid-in capital 2,537,000 Retained earnings 2,962,600 Total shareholders’ equity $ 5,499,600 a The preferred shares have a $2 dividend rate, are cumulative, and participate in distributions in excess of a $3 dividend on the common shares. Q. No dividends were paid in 2018 or 2019....
Swifty Company reported the following amounts in the stockholders’ equity section of its December 31, 2019,...
Swifty Company reported the following amounts in the stockholders’ equity section of its December 31, 2019, balance sheet. Preferred stock, 10%, $100 par (10,000 shares authorized, 1,800 shares issued) $180,000 Common stock, $5 par (93,000 shares authorized, 18,600 shares issued) 93,000 Additional paid-in capital 130,000 Retained earnings 467,000    Total $870,000 During 2020, Swifty took part in the following transactions concerning stockholders’ equity. 1. Paid the annual 2019 $10 per share dividend on preferred stock and a $2 per share dividend...
On December 31, 2020, the stockholders’ equity section of Campbell, Inc., was as follows: Common stock,...
On December 31, 2020, the stockholders’ equity section of Campbell, Inc., was as follows: Common stock, par value $10: authorized 30,000 shares; issued and outstanding 15,000 shares Additional paid-in-capital $110,000 Retained earnings 200,000 On September 1, 2021, Campbell declared a 30% stock dividend, and accordingly issued additional shares, when the far value of the stock was $18 per share. For the year ended December 31, 2021, Campbell sustained a net loss of $50,000. The balance of Campbell’s retained earnings as...
On December 31, 2020, the stockholders’ equity section of Campbell, Inc., was as follows: Common stock,...
On December 31, 2020, the stockholders’ equity section of Campbell, Inc., was as follows: Common stock, par value $10: authorized 30,000 shares; issued and outstanding 15,000 shares Additional paid-in-capital                                   $110,000 Retained earnings                                                200,000 On September 1, 2021, Campbell declared a 30% stock dividend, and accordingly issued additional shares, when the far value of the stock was $18 per share. For the year ended December 31, 2021, Campbell sustained a net loss of $50,000. The balance of Campbell’s retained earnings as...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT