Acme Inc. had net profits of $1,000,000 last year, has 100,000 shares outstanding and has maintained a consistent retention ratio of 40% annually. Earnings are expected to grow at 15% for the next three years and then decline to 4% for perpetuity. Acme Inc.'s CFO has estimated their cost of capital at 12%. What is the present value price of the stock?

Acme Inc. had net profits of $1,000,000 last year, has 100,000 shares outstanding and has maintained a consistent retention ratio of 40% annually. Earnings are expected to grow at 15% for the next three years and then decline to 4% for perpetuity. Acme Inc.'s CFO has estimated their cost of capital at 12%. What is the present value price of the stock?

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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XYZ corp expects to earn $4.3 per share next year and plow back 41.86% of its earnings (i.e., it expects to pay out a dividend of $2.5 per share, representing 58.14% of its earnings). The dividends are expected to grow at a constant sustainable growth rate and the stocks are currently priced at $30 per share. How much of the stock's $30 price is reflected in Present Value of Growth Opportunities (PVGO) if the investors' required rate of return is 20%? $_________
The Agents company is expected to pay dividends that will grow at a 21% rate from year 1 to year 4, with the growth rate declining to a constant 2% from year 5 onwards. Dividends are paid annually. The discount rate is 10% and the company just paid a $5.10 dividend. What is the current intrinsic price of the stock for this firm?
A company had free cash flows of $788 million last year. Free cash flows are expected to grow at 3.5% per year. The WACC for the firm is 11.8%. They currently have $4.4 billion in debt outstanding, and have 233 million common stock outstanding. The company has 50 million preferred stock outstanding, that currently trade at $53. What is the estimate of the stock price based on the firm valuation model? Add your answer
XYZ corp expects to earn $4.1 per share next year and plow back 39.02% of its earnings (i.e., it expects to pay out a dividend of $2.5 per share, representing 60.98% of its earnings). The dividends are expected to grow at a constant sustainable growth rate and the stocks are currently priced at $30 per share. How much of the stock's $30 price is reflected in Present Value of Growth Opportunities (PVGO) if the investors' required rate of return is 20%?
Shatin Intl. has 9.8 million shares, an equity cost of capital of 12.8% and is expected to pay a total dividend of $19.1 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $10.3 million of stock each year as well. What is your estimate of Shatin's stock price after this announcement?
Atlantic Northern Inc. just reported a net income of $5,000,000, and its current stock price is $25.75 per share. Atlantic Northern is forecasting an increase of 25% for its net income next year, but it also expects it will have to issue 1,500,000 new shares of stock (raising its shares outstanding from 5,500,000 shares to 7,000,000 shares). If Atlantic Northern's forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does management expect its stock price to be one year from now? $25.18 per share O $25.75 per share O$18.88 per share $31.48 per share One year later, Atlantic Northern Inc.'s stock is trading at $43.50, and the company reports its common equity value as $35,252,000. What is Atlantic Northern Inc.'s market-to-book (M/B) ratio? 8.63x Is it possible for a company to have a negative EPS and thus a negative P/E ratio? Yes v
Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%, its tax rate is 25%, the next expected dividend is $0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is $14.00 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? 9.96% 7.98% 10.12% 8.75% 8.23%
NHL Inc.’s current return on equity (ROE) is 20%, its current book equity per share is $50, and it pays out half of its earnings as dividends. Both the ROE and payout ratio will stay constant for the next two years. After year 2, competition will force ROE down to 8%, and NHL will increase its payout ratio to 75%. The cost of capital is 10%. What is NHL’s stock price today?
XYZ corp expects to earn $3.9 per share next year and plow back 35.9% of its earnings (i.e., it expects to pay out a dividend of $2.5 per share, representing 64.1% of its earnings). The dividends are expected to grow at a constant sustainable growth rate and the stocks are currently priced at $30 per share. How much of the stock's $30 price is reflected in Present Value of Growth Opportunities (PVGO) if the investors' required rate of return is 20%? $_________
One year ago, Barkley's stock sold for $28 a share. During last year, Barkley's paid $1.23 per share in dividends and saw its stock price increase by 7 percent for the year. Today, the firm announced that it will pay $1.30 per share in dividends this year. What do you know with certainty about the performance of Barkley's stock for this year? Multiple Choice The capital gains yield will be positive. The dividend yield for this year will be lower than it was last year. The total rate of return will be lower this year than it was last year. The total rate of return will be higher this year than it was last year. The dividend yield for this year will be higher than it was last year.
Little Oil has outstanding 1 million shares with a total market value of $29 million. The firm is expected to pay $1.00 million of dividends next year, and thereafter, the amount paid out is expected to grow by 5% a year in perpetuity. Thus, the expected dividend is $1.05 million in year 2, $1.1025 million in year 3, and so on. However, the company has heard that the value of a share depends on the flow of dividends, and therefore, it announces that next year's dividend will be increased to $2 million and that the extra cash will be raised immediately afterward by an issue of shares. After that, the total amount paid out each year will be as previously forecasted, that is, $1.05 million in year 2 and increasing by 5% in each subsequent year. A. At what price will the new shares be issued in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. B. How many shares will the firm need to issue? Note: Do not round intermediate calculations. Round your…

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