Atlantic Northern Inc. just reported a net income of $11,000,000, and its current stock price is $36.75 per share. Atlantic Northern isforecasting an increase of 25% for its net income next year, but it also expects it will have to issue 2,100,000 new shares of stock(raising its shares outstanding from 5,500,000 shares to 7,600,000 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 stockprice to be one year from now?$33.26 per share$36.75 per share$24.95 per share$41.57 per shareOne year later, Atlantic Northern Inc.'s stock is trading at $40.75, and the company reports its common equity value as $50,555,200. What is AtlanticNorthern Inc.'s market-to-book (M/B) ratio?Is it possible for a company to have a negative EPS and thus a negative P/E ratio?

1. P/E ratio = whereMPS = Market price per shareEPS = earnings per share2. market-to-book (M/B)…

Answered: Atlantic Northern Inc. just reported a…

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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Amarindo, Inc. (AMR), is a newly public firm with 9.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to $14.58 million, and you expect the firm's free cash flows to grow by 3.9% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of AMR's equity beta. However, you do have beta data for UAL, another firm in the same industry: AMR has a much lower debt-equity ratio of 0.45, which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is 20%, the risk-free rate is 5.2%, and the expected return on the market portfolio is 10.8%. a. Estimate AMR's equity cost of capital. b. Estimate AMR's share price. a. Estimate AMR's equity cost of capital. The equity cost of capital is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.)…
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?
Amarindo, Inc. (AMR), is a newly public firm with 11.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $15.41 million, and you expect the firm's free cash flows to grow by 3.8% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of AMR's equity beta. However, you do have beta data for UAL, another firm in the same industry: lower debt-equity ratio of 0.45, which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is 20%, the risk-free rate is 5.3%, and the expected return on the market portfolio is 10.7%. AMR has a much a. Estimate AMR's equity cost of capital. b. Estimate AMR's share price. a. Estimate AMR's equity cost of capital. The equity cost of capital is 21.16%. (Round to two decimal places.) Data table SID (Click on the following icon in order to copy its contents into a…
Bretton, Inc., just paid a dividend of $3.15 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year, indefinitely. Investors require a return of 13 percent on the stock for the first three years, a rate of return of 11 percent for the next three years, and then a return of 9 percent thereafter. What is the current share price for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price
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
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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%? $_________
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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