Question

Apple and Pear, Inc earned $6 EPS and paid out 60% of earnings as dividends this...

Apple and Pear, Inc earned $6 EPS and paid out 60% of earnings as dividends this year. Investors are optimistic about the prospects for Apple and Pear, Inc and are forecasting that dividend would grow over the next 5 years by about 7% a year. After year 5, growth will gradually settle down to a sustainable rate as 3% a year. The require rate of return of Apple and Pear as 6%. What is the current price of Apple and Pear, Inc.? Hint: 1. Value the firm’s dividends over the period of rapid growth. 2. Estimate Apple and Pear, Inc stock price at end of year 5, when growth should have settled down. 3. Calculate the present value of Apple and Pear, Inc stock by summing the present value of dividends up to the horizon year and the present value of the stock price at the horizon.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1


0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Apple and Pear, Inc earned $6 EPS and paid out 60% of earnings as dividends this...
Apple and Pear, Inc earned $6 EPS and paid out 60% of earnings as dividends this year. Investors are optimistic about the prospects for Apple and Pear, Inc and are forecasting that dividend would grow over the next 5 years by about 7% a year. After year 5, growth will gradually settle down to a sustainable rate as 3% a year. The require rate of return of Apple and Pear as 6%. What is the current price of Apple and...
Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate...
Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate of 17% for each of the next two years, then 10% the year after and settle down to a growth rate of 5% per year thereafter. Its beta is 1.2, the market risk premium is 7.6% and T-bills trade at 2%. What is the time-3 present value of all cash flows from time 4 on into the future? At what price should Earnings Inc....
Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate...
Earnings Inc. just paid a dividend of $4.05 per share. It should grow at a rate of 17% for each of the next two years, then 10% the year after and settle down to a growth rate of 5% per year thereafter. Its beta is 1.2, the market risk premium is 7.6% and T-bills trade at 2%. How much is the dividend at time 1 (D1)? How much is the dividend at time 2 (D2)? How much is the dividend...
Apple Inc. has expected earnings of $6 per share for next year. The company's return on...
Apple Inc. has expected earnings of $6 per share for next year. The company's return on equity ROE is 20% and its earnings retention ratio is 70%. If the company's market capitalization rate is 15%, what is the present value of its growth opportunities if the company's expected P/E ratio is 30?
2. Calculate the price of the following stock: a. Quark Inc. just paid a dividend of...
2. Calculate the price of the following stock: a. Quark Inc. just paid a dividend of $3.00 and the growth rate of dividends is going to continue at a rate of 5% indefinetely. The required rate of return is 12%. What is today's stock price and the price 1 year from now b. Higgey Corp's stock just paid a $3.00 dividend. The dividend is going to experience a growth rate of 15% for 2 years and then settle to an...
Neil is evaluating a Parrott Inc using dividend discount model. He has analyzed past dividends, earnings...
Neil is evaluating a Parrott Inc using dividend discount model. He has analyzed past dividends, earnings per share and payout ratios and has summarized the following info: Most recent dividend was $1.94 per share Most recent EPS was $6.45 EPS growth is 8% per year Dividend payout is stable at 30% Beta is 2.3 Risk free rate is 1.8% Market risk premium is 6.1%. What is the fair price for this stock?
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 13 years because the firm needs to plow back its earnings to fuel growth. The company will pay a dividend of $13 per share 14 years from today and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price?
Gerdin Inc. just paid out its annual dividend of $2/share. The dividend is expected to grow...
Gerdin Inc. just paid out its annual dividend of $2/share. The dividend is expected to grow at 50% a year for the next 2 years. Afterwards, the annual growth rate will be settled at 5% indefinitely. The required rate of return of the stock is 15%. Find out the expected stock price at the end of year 2. $45 $47.25 $41.74 $43.74 $50
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 14 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $8 per share dividend in 15 years and will increase the dividend by 7 percent per year thereafter. If the required return on this stock is 11 percent, what is the current share price?
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $9.4 per share dividend 10 years from today and will increase the dividend by 4.9 percent per year thereafter. If the required return on this stock is 8.96 percent, what is the current share price?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT