Question

Monfort, Inc., had EPS of $1.50 over its most recent period on sales of $50 per...

Monfort, Inc., had EPS of $1.50 over its most recent period on sales of $50 per share. Total assets per share is $25 and its equity multiplier is 4. Monfort paid a dividend per share of $0.45 for the most recent period. In addition the estimated beta for Monfort's stock is 1.5. The expected return on SP500 index is 13% and the ratte of return on 10year T-note is 3%. Based on the above information estimate the current price of the stock.

Homework Answers

Answer #1

Given about Monfort, Inc.

EPS = $1.50

Sales = $50 per share

Total assets = $25 per share

Equity multiplier = 4

=> ROE of the company = (EPS/total assets)*equity multiplier = (1.5/50)*4 = 12%

dividend paid D0 = 0.45

So, dividend payout ratio = D0/EPS = 0.45/1.5 = 30%

So, this, sustainable growth rate of the firm g = ROE*RR = 12*(1-0.3) = 8.4%

Beta of the stock = 1.5

Risk free rate Rf = 3%

Expected return on market Rm = 13%

So, using CAPM, cost of equity of firm = Rf + Beta*(Rm - Rf)

=> Ke = 3 + 1.5*(13-3) = 18%

So, using constant dividend growth rate, price of the stock today is

P0 = D0*(1+g)/(Ke - g) = 0.45*1.084/(0.18-0.084) = $5.08

So, current price of stock is $5.08

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
A firms most recent annual dividend was $1.50 per share. Over the next two years, the...
A firms most recent annual dividend was $1.50 per share. Over the next two years, the dividend is expected to grow at 12% per year, and then slow to a constant rate of 7% thereafter. If your required rate of return is 10% what is the value of the stock? $78.06 $58.55 $86.28 $54.59 None of the above The Company has 100 million shares outstanding, paid an annual dividend of $0.25 per share to its common stockholders, and has a...
(7-2) Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of...
(7-2) Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs , is 13%. What is the estimated value per share of Boehm’s stock? Please complete Problems P7-2 Modified (in addition, assuming a stock price of $22, calculate the stock's expected rate of return). (must be...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1=$1.50D1=$1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rsrs, is 13%. What is the estimated value per share of Boehm’s stock? (7-4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at...
(7-2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1=$1.50D1=$1.50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rsrs, is 13%. What is the estimated value per share of Boehm’s stock? (7-4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each...
Company FFF’s most recent EPS IS $5.00 per share. Your expect the company will increase EPS...
Company FFF’s most recent EPS IS $5.00 per share. Your expect the company will increase EPS by 10% next year and 8% the following year. You also expect that Company FFF will sell at a P/E multiple (tm) of 24 in 2 years. The company is expected to pay out 20% of earnings as a dividends and the required rate of retueb for FFF is 9%? a) What is your estimate for Earnings per Share over thr next two years?...
Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's...
Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's dividends to grow by 5% forever. Its stock price is $34.9 and its beta is 1.7. The risk-free rate is 2% and the expected return on the market portfolio is 8%. What is the best guess for the cost of equity?
GHL, Inc., has a dividend payout ratio of 55%. Its cost of equity is 10.7% and...
GHL, Inc., has a dividend payout ratio of 55%. Its cost of equity is 10.7% and its dividend growth rate is 5.2%. If its forward EPS is $5.67​, what is your estimate of its stock​ price? The price per share is ​$_.
6: Pro Build Inc. has had a net income of $16 million in its most recent...
6: Pro Build Inc. has had a net income of $16 million in its most recent year. Net income is expected to grow by 3% per year. The firm always pays out 10% of net income as dividends and has 7 million shares of common stock outstanding. The required return is 13%. What is the current stock price?
UVA Inc. is a company that manufactures and retails eye wear. The firm reported $ 50...
UVA Inc. is a company that manufactures and retails eye wear. The firm reported $ 50 million in after-tax operating income on revenues of $ 500 million in the most recent year. The company has 50 million shares outstanding, trading at $ 8 per share, and $ 150 million in debt at a current market interest rate of 8%; the corporate tax rate is 40%. The firm also has a cash balance of $ 50 million. The stock trades at...
Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's...
Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's dividends to grow by 3% forever. Its stock price is $37.9 and its beta is 1.1. The risk-free rate is 2% and the expected return on the market portfolio is 8%. Attempt 1/1 for 10 pts. Part 1 What is the best guess for the cost of equity?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT