Question

Company Q’s current return on equity (ROE) is 16%. The firm pays out 60 percent of its earnings as cash dividends. (payout ratio = .60). Current book value per share is $62. Book value per share will grow as Q reinvests earnings.

Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 12.5% and the payout ratio increases to .80. The cost of capital is 12.5%.

**a.** What are Q’s EPS and dividends in years 1,
2, 3, 4, and 5? **(Do not round intermediate calculations.
Round your answers to 2 decimal places.)**

**b.** What is Q’s stock worth per share?
**(Do not round intermediate calculations. Round your answer
to 2 decimal places.)**

Answer #1

Company Q’s current return on equity (ROE) is 13%. The firm pays
out 45 percent of its earnings as cash dividends. (payout ratio =
.45). Current book value per share is $53. Book value per share
will grow as Q reinvests earnings.
Assume that the ROE and payout ratio stay constant for the next
four years. After that, competition forces ROE down to 11.0% and
the payout ratio increases to .70. The cost of capital is
11.0%.
a. What are...

Company Q’s current return on equity (ROE) is 14%. It
pays out 50 percent of earnings as cash dividends (payout ratio =
0.50). Current book value per share is $65. Book value per share
will grow as Q reinvests earnings.
Assume that the ROE and payout ratio stay constant for
the next four years. After that, competition forces ROE down to
11.5% and the payout ratio increases to 0.70. The cost of capital
is 11.5%.
a. What are Q’s EPS...

Ames, Inc., has a current stock price of $44.50. For the past
year, the company had net income of $6,400,000, total equity of
$21,610,000, sales of $39,300,000, and 4.4 million shares of stock
outstanding.
What are earnings per share (EPS)? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
Earnings per share [] $
What is the price?earnings ratio? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)...

Ames,
Inc., has a current stock price of $43.00. For the past year, the
company had net income of $6,550,000, total equity of $21,640,000,
sales of $39,600,000, and 4.7 million shares of stock
outstanding.
What are
earnings per share (EPS)?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g.,
32.16.)
Earnings
per share
$
What is
the price?earnings ratio?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g.,
32.16.)
Price?earnings...

Sidman Products's common stock currently sells for $57 a share.
The firm is expected to earn $5.70 per share this year and to pay a
year-end dividend of $3.90, and it finances only with common
equity.
A. If investors require a 10% return, what is the expected
growth rate? Round your answer to two decimal places. Do not round
your intermediate calculations. %
B. If Sidman reinvests retained earnings in projects whose
average return is equal to the stock's expected...

Sidman Products's common stock currently sells for $70 a share.
The firm is expected to earn $8.40 per share this year and to pay a
year-end dividend of $3.80, and it finances only with common
equity.
If investors require a 12% return, what is the expected growth
rate? Do not round intermediate calculations. Round your answer to
two decimal places.
%
If Sidman reinvests retained earnings in projects whose average
return is equal to the stock's expected rate of return,...

Radon Homes' current EPS is $7.30. It was $4.28 5 years ago. The
company pays out 50% of its earnings as dividends, and the stock
sells for $34. a) Calculate the historical growth rate in earnings.
(Hint: This is a 5-year growth period.) Do not round intermediate
calculations. Round your answer to two decimal places. ____% b)
Calculate the next expected dividend per share, D1. (Hint: D0 =
0.50($7.30) = $3.65.) Assume that the past growth rate will
continue. Do...

ABC, Inc. reported retained earnings for the year just ended of
$638,000. The firm paid out $65,000 in cash dividends, and it has
ending total equity of $7.33 million.
a.
If the company currently has 700,000 shares of common stock
outstanding, what are earnings per share? Dividends per share? What
is book value per share? (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g.,
32.16.)
b.
If the stock currently sells for $30.30 per share,...

Makers Corp. had additions to retained earnings for the year
just ended of $301,000. The firm paid out $179,000 in cash
dividends, and it has ending total equity of $4.84 million. The
company currently has 150,000 shares of common stock
outstanding.
What are earnings per share? (Do not round intermediate
calculations and round your final answer to 2 decimal places, e.g.,
32.16.)
Earnings
$ per share
What are dividends per share?
(Do not round intermediate calculations
and round...

Joker stock has a sustainable growth rate of 11 percent, ROE of
17 percent, and dividends per share of $3.25. If the P/E ratio is
16.7, what is the value of a share of stock? (Do not round
intermediate calculations. Round your answer to 2 decimal
places.)
Stock value per share?

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