Aaron Inc. has 344 million shares outstanding. It expects earnings at the end of the year to be $575 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. $20.90 OB. $6.97 OC. $27.86 OD. $13.93

Aaron Inc. has 344 million shares outstanding. It expects earnings at the end of the year to be $575 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. $20.90 OB. $6.97 OC. $27.86 OD. $13.93

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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Time Warner shares have a market capitalization of $70 billion. The company is expected to pay a dividend of $0.35. per share and each share trades for $20. The growth rate in dividends is expected to be 8% per year. Also, Time Warner has $15 billion of debt that trades with a yield to maturity of 8%. If the firm's tax rate is 25%, compute the WACC? O A. 9.09% B. 7.72% C. 8.63% OD. 8.18%
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? A. $35.32 B. $8.83 C. $26.49 D. $17.66
Krell Industries has a share price of $21.35 today. If Krell is expected to pay a dividend of $ 0.61 this year, and its stock price is expected to grow to $ 23.08 at the end of the year, what is Krell's equity cost of capital? 16.3% 9.6% O 11.0% O 12.0%
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
Your company has expected future cash flows of $70 million in perpetuity. The company's WACC is 12.8%. The company has $337 million in debt, and $188 million in excess cash, and 12 million shares. What is the share price of the company?
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
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.)
AFW Industries has 180 million shares outstanding and expects earnings at the end of this year of $735 million. AFW plans to pay out 56% of its earnings in total, paying 37% as a dividend and using 19% to repurchase shares. If AFW's earnings are expected to grow by 8.9% per year and these payout rates remain constant, determine AFW's share price assuming an equity cost of capital of 12.6%. The price per share will be $ (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%
S Corp. is expected to pay a $2.55 dividend at year end, the dividend is expected to grow at a constant rate of 4.50% a year, and the common stock currently sells for $35 a share. The before-tax cost of debt is 5.50%, and the tax rate is 40%. The target capital structure consists of 40% debt and 60% common equity. What is the company’s WACC? Do not round your intermediate calculations
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.)

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