Aaron Inc. has 301 million shares outstanding. It expects earnings at the end of the year to be $638 million. The firm's equity cost of capital is 12%. Aaron pays out 50% of its earnings in total: 30% paid out as dividends and 20% used to repurchase shares. If Aaron's earnings are expected to grow at a constant 6% per year, what is Aaron's share price? OA. $35.32 B. $8.83 C. $26.49 D. $17.66

Aaron Inc. has 301 million shares outstanding. It expects earnings at the end of the year to be $638 million. The firm's equity cost of capital is 12%. Aaron pays out 50% of its earnings in total: 30% paid out as dividends and 20% used to repurchase shares. If Aaron's earnings are expected to grow at a constant 6% per year, what is Aaron's share price? OA. $35.32 B. $8.83 C. $26.49 D. $17.66

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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Von Bora Corporation (VBC) is expected to pay a $3.50 dividend at the end of this year. If you expect VBC's dividend to grow by 6% per year forever and VBC's equity cost of capital is 13%, then the value of a share of VBS stock is closest to OA. $18.42 B. $50.00 C. $30.00 OD. $20.00
Zoom Enterprises expects that one year from now it will pay a total dividend of $5.1 million and repurchase $5.1 million worth of shares. It plans to spend $10.2 million on dividends and repurchases every year after that forever, although it may not always be an even split between dividends and repurchases. If Zoom's equity cost of capital is 12.3% and it has 4.9 million shares outstanding, what is its share price today?
The yield on the company's outstanding bonds is 6.8%; its tax rate is 40%; the next expected dividend is $1.40 a share; the dividend is expected to grow at a constant rate of 7.00% a year; the price of the stock is $25.00 per share; the flotation cost for selling new shares is F 10%; and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?
Gamma Corporation is a mature firm. The company paid a dividend of $5, and it will grow at 10% for the next two years. After two years from now, the management expects to reduce the payout by 5% per year for the indefinite future. If you require a return of 12 percent on this stock, what will you pay for a share today? A. $67.23 B. $75.19 C. $87.23 D. $84.35
CX Enterprises has the following expected dividends: $1.12 in one year, $1.24 in two years, and $1.35 in three years. After that, its dividends are expected to grow at 4% per year forever (so that year 4's dividend will be 4% more than $1.35 and so on). If CX's equity cost of capital is 12.2%, what is the current price of its stock?
Summit Systems will pay a dividend of $1.67 this year. If you expect Summit's dividend to grow by 5.9% per year, what is its price per share if the firm's equity cost of capital is 11.7%? The price per share is $ (Round to the nearest cent.)
IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. What is IBM's cost of equity capital? A. 9.65% B. 10.23% C. 12.36% D. 11.44% E. 10.89%
Krell Industries has a share price of $22.35 today. If Krell is expected to pay a dividend of $0.84 this year and its stock price is expected to grow to $24.51 at the end of the year, what is Krell's dividend yield and equity cost of capital? The dividend yield is 3.8%. (Round to one decimal place.) The capital gain rate is 13.42 %. (Round to one decimal place.)
30) Eisenhower Communications is trying to estimate cash flows for a proposed project. The following information has been collected on the project: Equipment cost $10,000 Working capital investment $2,000 Revenue $10,000 Operating Expense (excluding depreciation) $6,000 Interest expense $2,000 Tax Rate 40% Salvage value $4,000 Project lifespan 4 years Year Depreciation Rate 1 33% 2 45% 3 15% 4 7% The initial investment outlay or cash flow at the start of the project (time 0) is: Question 30 options: ($8,000) ($10,000) ($12,000) ($4,000)
Summit Systems will pay a dividend of $1.52 this year. If you expect Summit's dividend to grow by 6.7% per year, what is its price per share if the firm's equity cost of capital is 11.8% ? The price per share is $ (Round to the nearest cent.).
Krell Industries has a share price of $21.81 today. If Krell is expected to pay a dividend of $1.18 this year and its stock price is expected to grow to $24.71 at the end of the year, what is Krell's dividend yield and equity cost of capital? The dividend yield is%. (Round to one decimal place.)
CX Enterprises has the following expected dividends: $1.03 in one year, $1.17 in two years, and $1.32 in three years. After that, its dividends are expected to grow at 4.2% per year forever (so that year 4's dividend will be 4.2% more than $1.32 and so on). If CX's equity cost of capital is 12%, what is the current price of its stock? The price of the stock will be $ (Round to the nearest cent.)

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