Question

Justin Cement Company has had the following pattern of earnings
per share over the last five years:

Year |
Earnings Per Share |
||

20X1 | $ | 12.00 | |

20X2 | 12.60 | ||

20X3 | 13.23 | ||

20X4 | 13.89 | ||

20X5 | 14.58 | ||

The earnings per share have grown at a constant rate (on a rounded
basis) and will continue to do so in the future. Dividends
represent 40 percent of
earnings.

**a.** Project earnings and dividends for the next
year (20X6). **(Round the growth rate to the nearest whole
percent. Do not round any other intermediate calculations. Round
your answers to 2 decimal places.)
**

**b.** If the required rate of return
(*K _{e}*) is 13 percent, what is the anticipated
stock price (

Answer #1

**(a)**

Year |
EPS | Growth (in %) |
DPS (40% of EPS) |

2011 | 12 | (12 x 0.4) = $ 4.8 | |

2012 | 12.6 | [(12.6 -12)/12] x100 = 5 | (12.6 x 0.4) = $ 5.04 |

2013 | 13.23 | [(13.23 -12.6)/12.6] x 100 = 5 | (13.23 x 0.4) = $ 5.292 |

2014 | 13.89 | [(13.89 - 13.23)/13.23] x 100 = 4.988 or 5 % | (13.89 x 0.4) = $ 5.556 |

2015 | 14.58 | [(14.58 - 13.89)/13.89] x 100 = 4.967 or 5% | (14.58 x 0.4) = $ 5.832 |

2016 |
15.31 |
[(15.31-14.58)/14.58] x 100 = 5.006 or 5
% |
(15.31 x 0.4) = $ 6.124 |

* DPS is Dividend Per Share and EPS is Earnings Per Share

**(b) As the EPS and DPS figures given are the end of year
figures, the 2016 EPS and DPS come in at the end of that year.
Hence, stock price at beginning of 2016 or end of year 2015 would
be the discounted value of 2016 DPS.**

**Required Rate of Return = K(e) =13 % and Growth Rate = g
= 5 %**

**Therefore, P0 = 2016 DPS / (K(e) - g) = 15.31 / (0.13 -
0.05) = $ 191.375**

Justin Cement Company has had the following pattern of earnings
per share over the last five years:
Year
Earnings
Per Share
20X1
$
9.00
20X2
9.54
20X3
10.11
20X4
10.72
20X5
11.36
The earnings per share have grown at a constant rate (on a rounded
basis) and will continue to do so in the future. Dividends
represent 40 percent of
earnings.
a. Project earnings and dividends for the next
year (20X6). (Round the growth rate to the...

Justin Cement Company has had the following pattern of earnings
per share over the last five years:
Year
Earnings
Per Share
20X1
$
7.00
20X2
7.42
20X3
7.87
20X4
8.34
20X5
8.84
The earnings per share have grown at a constant rate (on a rounded
basis) and will continue to do so in the future. Dividends
represent 40 percent of
earnings.
a. Project earnings and dividends for the next
year (20X6). (Round the growth rate to the...

Rick’s Department Stores has had the following pattern of
earnings per share over the last five years:
Year
Earnings
per share
20XU
$
12.00
20XV
12.60
20XW
13.23
20XX
13.89
20XY
14.58
The earnings per share have grown at a constant rate (on a
rounded basis) and will continue to do so in the future. Dividends
represent 40 percent of earnings.
a. Project earnings and dividends for the next
year (20XZ). (Do not round intermediate calculations. Round
the final...

Suppose that a firm’s recent earnings per share and dividend per
share are $3.90 and $2.90, respectively. Both are expected to grow
at 7 percent. However, the firm’s current P/E ratio of 20 seems
high for this growth rate. The P/E ratio is expected to fall to 16
within five years.
Compute the dividends over the next five years. (Do not round
intermediate calculations and round your final answers to 3 decimal
places.) Dividends Years First year $ 3.10 Second...

The IRS had established a value on her father’s stock of $100 a
share, and since he owned 100,000 shares, the value of the company
for estate tax purposes was $10,000,000. to aid the valuation
process Ryer assembled the following information. The firm earned
$8.50 a share and distributed 60 percent in cash dividends during
its last fiscal year. This payout ratio had been maintained for
several years, with 40 percent of the earnings being retained to
finance future growth.The...

Business has been good for Keystone Control Systems, as
indicated by the eleven-year growth in earnings per share. The
earnings have grown from $1.00 to $1.71.
a. Determine the compound annual rate of growth in
earnings (n = 11). (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
b. Based on the growth rate determined in part a,
project earnings for next year (E1).(Do
not round intermediate calculations. Round your answer to 2...

Business has been good for Keystone Control Systems, as
indicated by the ten-year growth in earnings per share. The
earnings have grown from $1.00 to $2.96.
a. Determine the compound annual rate of growth
in earnings (n = 10). (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
b. Based on the growth rate determined in part
a, project earnings for next year
(E1). (Do not round intermediate
calculations. Round your answer...

Business has been good for Keystone Control Systems, as
indicated by the ten-year growth in earnings per share. The
earnings have grown from $1.00 to $3.84.
a. Determine the compound annual rate of growth
in earnings (n = 10)
b. Based on the growth rate determined in part
a, project earnings for next year
(E1). (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
c. Assume the dividend payout ratio is 50 percent.
Compute D1. (Do not...

Business has been good for Keystone Control Systems, as
indicated by the six-year growth in earnings per share. The
earnings have grown from $1.00 to $1.85.
a. Determine the compound annual rate of growth
in earnings (n = 6). (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
compound annual rate of growth____________%
b. Based on the growth rate determined in part
a, project earnings for next year
(E1).(Do not round intermediate
calculations....

The Clipper Sailboat Company is expected to earn $4 per share
next year. The company will have a return on equity of 17 percent
and the company will grow 5 percent in the future. The company has
a cost of equity of 15 percent. Given that information, answer the
following questions.
What is the value of the company's stock? Do not round
intermediate calculations. Round your answer to the nearest
cent.
$
What is the present value of the growth...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 13 minutes ago

asked 30 minutes ago

asked 30 minutes ago

asked 32 minutes ago

asked 35 minutes ago

asked 44 minutes ago

asked 49 minutes ago

asked 56 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago