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“I-cannot–hear-you” and “Call-your-grandma”. 50% of the all customers subscribe to “I-cannot-hear- you” and pay $20 per...

“I-cannot–hear-you” and “Call-your-grandma”. 50% of the all customers subscribe to “I-cannot-hear- you” and pay $20 per month. 50% of the customers subscribe to “Call-your-grandma” and pay $40 per month. CellTel incurs total annual expenses of $120 million generating those revenues. The Management of CellTel has decided to retain 50% of its profits to improve its infrastructure. The company has issued a total of 24 million shares. Shares have a current value of $20 per share. The forward P/E for CellTel is 8

a. What are the expected total earnings of CellTel for next year?

b. what is current dividend yield?

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Answer #1

Expected Earnings per Share = Current Stock Price / Forward PE

Expected Earnings per Share = 20 / 8

Expected Earnings per Share = $2.50

a. What are the expected total earnings of CellTel for next year?

Expected total earnings = Earnings per Share * Shares O/s

Expected total earnings = $2.50 * 24 Million

Expected total earnings = $60,000,000

b.

Current Dividend Yield = EPS * Payout ratio / Stock Price

Current Dividend Yield = $2.50 * 0.50 / $20

Current Dividend Yield = 6.25%

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