A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. Sheanticipates no payout of earnings in the form of cash dividends during the development stage (1). During the growth stage (II), sheanticipates 14 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratiowill go up to 40 percent and will eventually reach 53 percent during the maturity stage (IV).a. Assuming earnings per share will be as follows during each of the four stages, indicate the cash dividend per share (if any) duringeach stage.Note: Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round youranswers to 2 decimal places.Stage IStage II$ 0.251.65Stage III2.40Stage IV3.90DividendsStage IStage IIStage IIIStage IVb. Assume in Stage IV that an investor owns 325 shares and is in a 15 percent tax bracket. What will be the investor's aftertax incomefrom the cash dividend?Note: Do not round intermediate calculations and round your answer to 2 decimal places.Aftertax income

a)Stages EPSDividend PayoutsWorkingStage I$0.25-No dividend payout in development stageStage…

Answered: A financial analyst is attempting to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 0 – 100 1-10 + 17 On the basis of the behavior of the firm’s stock, you believe that the beta of the firm is 1.44. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 11%, what is the net present value of the project?
Suppose MMC Industries has calculated its external funds needed (EFN) to be $23,000,000, but now management is considering raising the previously assumed dividend payout ratio from 35% to 40%. If the payout ratio is increased, what will happen to EFN?
For this question, use the American Eagle Outfitters 2016 10Ks and 2017 Q1 10Q from the previous questions. Your Managing Director asks you to include valuations based on Comparable Forward PE multiples given that peer capital structures have been relatively similar. She asks you to assume a 14x PE multiple on forward diluted EPS, and a 10% growth rate over LTM diluted EPS to calculate forward EPS, which is being assumed by industry analysts. Using the aforementioned assumptions for Comparable Transactions’ PE multiples, what is the implied AEO share price based on the latest data provided to you from its Corporate filings as of June 2017? 15.12 16.63 16.79 17.86
Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look glamorous. Below you will find selected information necessary to compute some valuation estimates for the firm. Assume the values provided are from year-end 2021. Also assume that the firm's equity beta is 1.40, the risk-free rate is 2.35 percent, and the market risk premium is 6.0 percent. Dividends per share Return on equity Book value per share 2021 value per share Average price multiple Forecasted growth rate $2.34 8.50% $ 19.30 Share price Earnings Cash Flow $5.00 13.10 13.63% $6.30 9.57 11.26% Sales $ 25.65 2.51 7.24% The sustainable growth rate is 4.522 percent, and the required return is 10.75 percent. Use the clean surplus relationship to calculate the share price for Beagle Beauties with the residual income model. Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Adobe Systems has come out with a new and improved product. As a result, the firm projects an ROE of 22.5%, and it will maintain a plowback ratio of .50. Its projected earnings are $3.75 per share. Investors expect an 18% rate of return on the stock. At what price and P/E ratio would you expect the firm to sell and what is the preset value of growth opportunities?
A manager believes his firm will earn a return of 12.50 percent next year. His firm has a beta of 1.40, the expected return on the market is 10.50 percent, and the risk-free rate is 3.50 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return % Determine whether the manager is saying the firm is undervalued or overvalued. O overvalued O undervalued
You are building a free cash flow to the firm model. You expect sales to grow from $1 billion for the year that just ended to $1.15 billion five years from now. Assume that the company will not become any more or less efficient in the future. Assume that the company will grow at a constant rate for 5 years, and then at a constant rate of 2.334672% for year 6 and onward after that. Use the following information to calculate the value of the equity on a per-share basis. a. Assume that the company currently has $300 million of net PP&E. b. The company currently has $100 million of net working capital. c. The company has operating margins of 12 percent and has an effective tax rate of 28 percent. d. The company has a weighted average cost of capital of 11 percent. This is based on a capital structure of two-thirds equity and one-third debt. e. The firm has 2 million shares outstanding. Do not round intermediate calculations. Round your answer to the nearest cent. $
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $2.40 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 12.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 2.40% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Dividends one year from now (D1) Horizon value (P1) Intrinsic value of Portman's stock Value The risk-free rate (TRF) is 3.00%, the market risk premium (RPM) is 3.60%, and Portman's beta is 1.70.…
You are trying to value the stocks of Imaginary Inc. The company is currently involved ina very risky, but potentially very profitable project. In the preceding year, the companyhad earnings of $10 per share. You expect the earnings per share to grow to $15, $20, and$25 in the next three years, after which you expect a growth rate of 2%. The companyalways applies a plowback ratio of 60%. You estimate that a risk-adjusted discount rateof 10% is appropriate.a). What are the expected dividends per share in the next three years?b). What is the expected price per share three years from now?c). What is the fair stock price per share today?
You are now an equity analyst. We now find that the actual valuation of Company X is 130. Your manager suggests basing the price on a discounted dividend model and a discounted free cash flow valuation method. However, these two methods may produce very different estimates when applied to actual data. The discounted dividend model works out to a price of 60, while the discounted free cash flow valuation method works out to a price of 10. Question: Explain to your management why the two valuation methodologies provide different estimations. Specifically, discuss the assumptions implicit in the two methodologies, as well as the assumptions you made when doing your analysis. Why do these projections differ from Company X's current stock price?
1. A credit portfolio manager is expecting corporate credit spreads to widen over the next several months. What are two ways that she can take advantage of the excess return (+coupon payments) relative to risk-free assets (i.e. treasuries) but limit the impact of the expected moves?
31. CAPM and Valuation. You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow -100 1-10 +15 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assuming that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 12%, what is the net present value of the project? (LO12-3)

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