Question

Maynard Steel plans to pay a dividend of $ 3.17 this year. The company has an expected earnings growth rate of 4.1 % per year and an equity cost of capital of 9.3 %.

a. Assuming Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price.

b. Suppose Maynard decides to pay a dividend of $ 1.04 this year and use the remaining $ 2.13 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price.

c. If Maynard maintains the dividend and total payout rate in (b), at what rate are Maynard's dividends and earnings per share expected to grow?

Answer #1

**a.**

Given dividend growth = 4.1%.

equity cost of capital = 9.3%

dividend paid = $3.17.

Share price = dividend paid / (cost of capital-growth rate)= 3.17 / (9.3% – 4.1%) = $60.96

**b.**

As it is given that total payout rate remains constant, and total amount = $1.04 + $2.13 = $3.17

Using the total payout model,

Share price = (dividend paid + repurchases)/ (cost of capital-growth rate)=

Share price = $1.04 + $2.13 / (9.3% – 4.1%) = 3.17 / (9.3% – 4.1%) = $60.96

**c.**

growth rate = cost of capital – Dividend Yield = 9.3% – 1.04/60.96 = 7.59%

**Note:** Answers are rounded off to two
decimals

Maynard Steel plans to pay a dividend of $3.17 this year. The
company has an expected earnings growth rate of 4.2% per year and
an equity cost of capital of 9.3%.
a. Assuming Maynard's dividend payout rate and expected growth
rate remain constant, and that the firm does not issue or
repurchase shares, estimate Maynard's share price.
b. Suppose Maynard decides to pay a dividend of $1.01 this year
and use the remaining $2.16 per share to repurchase shares. If...

Maynard Steel plans to pay a dividend of $3.16 this year. The
company has an expected earnings growth rate of 3.6% per year and
an equity cost of capital of 10.4%.
a. Assuming that Maynard's dividend payout rate and expected
growth rate remain constant, and that the firm does not issue or
repurchase shares, estimate Maynard's share price.
b. Suppose Maynard decides to pay a dividend of $1.07 this year
and use the remaining $2.09 per share to repurchase shares....

Maynard Steel plans to pay a dividend of $ 2.99 this year. The
company has an expected earnings growth rate of 4.3% per year and
an equity cost of capital of 10.7%.
a. Assuming Maynard's dividend payout rate and
expected growth rate remain constant, and Maynard does not issue
or repurchase shares, estimate Maynard's share price.
b. Suppose Maynard decides to pay a dividend of
$0.94 this year and use the remaining $2.05 per share to repurchase
shares. If Maynard's...

DFB, Inc., expects earnings this year of $5.48 per share, and
it plans to pay a $3.96 dividend to shareholders. DFB will retain
$1.52 per share of its earnings to reinvest in new projects with an
expected return of 14.8% per year. Suppose DFB will maintain the
same dividend payout rate, retention rate, and return on new
investments in the future and will not change its number of
outstanding shares.
a. What growth rate of earnings would you forecast for...

Halliford Corporation expects to have earnings this coming year
of $3.17 per share. Halliford plans to retain all of its earnings
for the next two years. For the subsequent two years, the firm
will retain 50% of its earnings. It will then retain 21% of its
earnings from that point onward. Each year, retained earnings will
be invested in new projects with an expected return of 24.36% per
year. Any earnings that are not retained will be paid out as...

Assume Highline Company has just paid an annual dividend of $
1.07. Analysts are predicting an 11.2 % per year growth rate in
earnings over the next five years. After then, Highline's earnings
are expected to grow at the current industry average of 4.9 % per
year. If Highline's equity cost of capital is 9.3 % per year and
its dividend payout ratio remains constant, for what price does
the dividend-discount model predict Highline stock should
sell?
The value of...

XYZ company is expected to pay a dividend per share of $1.1 for
the coming year. It expected that company can maintain a dividend
growth of 15% a year for the next 3 years. Given an in-depth
analysis, it comes to term that the growth rate will decline to 5
per cent per annum and remains at that level indefinitely. The
required rate of return on the shares is 12 per cent per annum.
Calculate the current share price.
If...

AFW Industries has 178 million shares outstanding and expects
earnings at the end of this year of $703 million. AFW plans to pay
out 63% of its earnings in total, paying 36% as a dividend and
using 27% to repurchase shares. If AFW's earnings are expected to
grow by 8.6% per year and these payout rates remain constant,
determine AFW's share price assuming an equity cost of capital of
12.5%.

A business is to pay a dividend per share of $1.1 for the
upcoming year. It's expected they can maintain a dividend growth of
15% each year for the next 3 yrs. It comes to term that the growth
rate is going to decrease to 5 per cent p.a. and remains at that
level forever. The required rate of return on the shares is 12 per
cent p.a.
What is the current share price
If the market is $20.00, should...

A company is expected to pay a dividend of $1.49 per share one
year from now and $1.93 in two years. You estimate the risk-free
rate to be 4.2% per year and the expected market risk premium to be
5.6% per year. After year 2, you expect the dividend to grow
thereafter at a constant rate of 5% per year. The beta of the stock
is 1.4, and the current price to earnings ratio of the stock is 17.
What...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 10 minutes ago

asked 27 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago