Question

Halliford Corporation expects to have earnings this coming year of $3.212 per share. Halliford plans to retain all of its earnings for the next two years.​ Then, for the subsequent two​ years, the firm will retain 55% of its earnings. It will retain 21% of its earnings from that point onward. Each​ year, retained earnings will be invested in new projects with an expected return of 21.9% per year. Any earnings that are not retained will be paid out as dividends. Assume​ Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If​ Halliford's equity cost of capital is 11.7%​, what price would you estimate for Halliford​ stock?

Answer 1