Active Gear Inc. reported earnings per share (EPS) of $10.00 last year when its stock price was $200.00. This year, its earnings increased by 15%. If the P/E ratio remains constant, what is the likely price of the stock?
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- Use the extended DuPont equation to provide a breakdown of Computrons projected return on equity. How does the projection compare with the previous years and with the industrys DuPont equation?The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company’s stock currently trades at $60 per share. Compute the stock’s earnings per share (EPS). What is the stock’s P/E ratio? Determine what the stock’s dividend yield would be if it paid $1.75 per share to common stockholders.Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) was 2.00 and whose dividend is expected to grow indefinitely at a 6% rate. (1) What is the firms current estimated intrinsic stock price? (2) What is the stocks expected value 1 year from now? (3) What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year?
- CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?Ratio Analysis MJO Inc. has the following stockholders equity section of the balance sheet: On the balance sheet date, MJOs stock was selling for S25 per share. Required: Assuming MJOs dividend yield is 1%, what are the dividends per common share? Assuming MJOs dividend yield is 1% and its dividend payout is 20%, what is MJOs net income?A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?
- Rebert Inc. showed the following balances for last year: Reberts net income for last year was 3,182,000. Refer to the information for Rebert Inc. above. Also, assume that the market price per share for Rebert is 51.50. Required: 1. Compute the dollar amount of preferred dividends. 2. Compute the number of common shares. 3. Compute earnings per share. (Note: Round to two decimals.) 4. Compute the price-earnings ratio. (Note: Round to the nearest whole number.)Smiley Corporations current sales and partial balance sheet are shown here. Sales are expected to grow by 10% next year. Assuming no change in operations from this year to next year, what are the projected spontaneous liabilities?Using the Value Line Investment Survey report in Exhibit 11.5, find the following information for Apple. What was the amount of revenues (i.e., sales) generated by the company in 2017? What were the latest annual dividends per share and dividend yield? What is the earnings per share (EPS) projection for 2019? How many shares of common stock were outstanding? What were the book value per share and EPS in 2017? How much long-term debt did the company have in the third quarter of 2018?
- Financial leverage Costco Wholesale Corporation (COST) and Wel-Mart Stroes Inc. (WMT)reported the following data (in milllions) for a recent year: Compute the return on stockholders equity. Round to one decimal place.The Dow Jones Industrial Average (DJIA) and the Standard Poors 500 (SP 500) indexes are used as measures of overall movement in the stock market The DJIA is based on the price movements of 30 large companies: the SP 500 is an index composed of 500 stocks. Some say the SP 500 is a better measure of stock market performance because it is broader based. The closing price for the DJIA and the SP 500 for 15 weeks, beginning with January 6, 2012, follow (Barrons web site, April 17, 2012). a. Develop a scatter chart for these data with DJIA as the independent variable. What does the scatter chart indicate about the relationship between DJIA and SP 500? b. Develop an estimated regression equation showing how SP 500 is related to DJIA. What is the estimated regression model? c. What is the 95% confidence interval for the regression parameter 1? Based on this interval, what conclusion can you make about the hypotheses that the regression parameter 1 is equal to zero? d. What is the 95% confidence interval for the regression parameter 0? Based on this interval, what conclusion can you make about the hypotheses that the regression parameter 0 is equal to zero? e. How much of the variation in the sample values of SP 500 does the model estimated in part (b) explain? f. Suppose that the closing price for the DJIA is 13,500. Estimate the closing price for the SP 500. g. Should we be concerned that the DJIA value of 13,500 used to predict the SP 500 value in part (f) is beyond the range of the DJIA used to develop the estimated regression equation?
