Question

- WinesDirect Ltd generated an EPS this year of $1.20 and paid a dividend of $0.70 per share. WinesDirect has recently been able to generate a return of 9.25% p.a. on its (book) equity base. If these numbers are assumed to be fairly stable, what will be WinesDirect's expected future growth rate?

- 9.25%
- 4.80%
- 4.25%
- 3.85%
- None of the above

- What is the future value of a $3,000 invested for 20 years at an interest rate of 12% p.a. compounded quarterly? (Rounded to the nearest dollar.)

- $28,923
- $29,923
- $30,923
- $31,923
- None of the above

- Tricky Traps manufactures an innovative mouse trap. Sales this year are $650,000. The company expects its sales to go up to $900,000 in six years. What is the expected annual average growth rate in sales for this company? (Rounded to the nearest percent).

- 9%
- 8%
- 7%
- 6%
- None of the above

- If you require a 12% rate of return, how much would you pay now for a bond with a face value of $6,000, pays $160 interest each year and matures in 10 years' time? (Round your answer to the nearest $10).

- $2,840
- $2,850
- $2,860
- $2,870
- None of the above

- Eclipse Textile Company Ltd generated an EPS this year of $4.30 and paid a dividendof $1.65 per share. Eclipse Textile Company has recently been able to generate a return of 13.50% p.a. on its (book) equity base. If these numbers are assumed to be fairly stable, what will be Eclipse Textile Company's expected future growth rate?

- 9.25%
- 8.32%
- 7.32%
- 7.58%
- None of the above

** Please show the all mathematical steps and the Financial Calculator step if possible, Thanks.

Answer #1

Dividend payout ratio = dividend / EPS = 0.7/1.2=0.5833

Growth rate=ROE*(1-payout ratio) |

growth rate=9.25*(1-0.5833) |

growth rate = 3.85 |

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100 |

Effective Annual Rate = ((1+12/4*100)^4-1)*100 |

Effective Annual Rate% = 12.55 |

Future value = present value*(1+ rate)^time |

Future value = 3000*(1+0.12550881)^20 |

Future value = 31923 |

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