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Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 5 percent over the next four years. The required rate of return is 12 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. e. Compute the current value of the stock. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)       f. Use the formula given below to show that it will provide approximately the same answer as part e. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)   P0 = D1 Ke − g       g. If current EPS were equal to $5.51 and the P/E ratio is 20% higher than the industry average of 10, what would the stock price be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)       h. By what dollar amount is the stock price in part g different from the stock price in part f? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)       i. With regard to the stock price in part f, indicate which direction it would move if:

Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 5 percent over the next four years. The required rate of return is 12 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. e. Compute the current value of the stock. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)       f. Use the formula given below to show that it will provide approximately the same answer as part e. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)   P0 = D1 Ke − g       g. If current EPS were equal to $5.51 and the P/E ratio is 20% higher than the industry average of 10, what would the stock price be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)       h. By what dollar amount is the stock price in part g different from the stock price in part f? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)       i. With regard to the stock price in part f, indicate which direction it would move if:

Essentials Of Investments
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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Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 5 percent over the next four years. The required rate of return is 12 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

e. Compute the current value of the stock. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

 

 

 

f. Use the formula given below to show that it will provide approximately the same answer as part e. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

 

P0 =

D1
Ke − g

 

 

 

g. If current EPS were equal to $5.51 and the P/E ratio is 20% higher than the industry average of 10, what would the stock price be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

 

 

 

h. By what dollar amount is the stock price in part g different from the stock price in part f? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

 

 

 

i. With regard to the stock price in part f, indicate which direction it would move if:

 

 
& Appendix B (concluded) Present value of $1 Period 2 3 LT Ca 100 0 7 9 10 20 50 13% 0.885 0.783 0.693 My Questions | bartl... 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.098 0.087 0.047 0.026 0.008 0.002 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.038 0.020 0.005 0.001 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 0.107 0.093 0.081 0.070 0.061 0.030 0.015 0.004 0.001 16% 0.862 0.743 0.641 Block17e_AppB.pdf a... 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.108 0.093 0.080 0.069 0.060 0.051 0.024 0.012 0.003 0.001 17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.095 0.081 0.069 0.059 0.051 0.043 0.020 0.009 0.002 18% 0.847 0.718 0.609 0.515 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.016 0.007 0.001 0 Time & Attendance: YLL Percent 19% 0.840 0.706 0.593 MINIMI 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.074 0.062 0.052 0.044 0.037 0.031 0.013 0.005 0.001 0 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 9 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.010 0.004 0.001 25% 0.800 0.640 0.512 0.410 0.328 0.262 0.210 0.168 0.134 0.107 0.086 0.069 0.055 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.004 0 0 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0 CO 35% 0.741 0.549 0.406 0.301 0.223 0.165 0.122 0.091 0.067 0.050 0.037 0.027 0.020 0.015 0.011 0.008 0.006 0.005 0.003 0.002 0.001 0 O 40% 0.714 0.510 0.364 0.260 0.186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.001 Copyright 2019 ©McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. CHID 50% 0.667 0.444 0.296 0.198 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.001 0 0 0 0 0 0
Transcribed Image Text:& Appendix B (concluded) Present value of $1 Period 2 3 LT Ca 100 0 7 9 10 20 50 13% 0.885 0.783 0.693 My Questions | bartl... 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.098 0.087 0.047 0.026 0.008 0.002 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.038 0.020 0.005 0.001 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 0.107 0.093 0.081 0.070 0.061 0.030 0.015 0.004 0.001 16% 0.862 0.743 0.641 Block17e_AppB.pdf a... 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.108 0.093 0.080 0.069 0.060 0.051 0.024 0.012 0.003 0.001 17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.095 0.081 0.069 0.059 0.051 0.043 0.020 0.009 0.002 18% 0.847 0.718 0.609 0.515 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.016 0.007 0.001 0 Time & Attendance: YLL Percent 19% 0.840 0.706 0.593 MINIMI 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.074 0.062 0.052 0.044 0.037 0.031 0.013 0.005 0.001 0 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 9 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.010 0.004 0.001 25% 0.800 0.640 0.512 0.410 0.328 0.262 0.210 0.168 0.134 0.107 0.086 0.069 0.055 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.004 0 0 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0 CO 35% 0.741 0.549 0.406 0.301 0.223 0.165 0.122 0.091 0.067 0.050 0.037 0.027 0.020 0.015 0.011 0.008 0.006 0.005 0.003 0.002 0.001 0 O 40% 0.714 0.510 0.364 0.260 0.186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.001 Copyright 2019 ©McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. CHID 50% 0.667 0.444 0.296 0.198 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.001 0 0 0 0 0 0
Appendix B Period 1 EN M44 19 3 NI DJ On 13 16 19 30 wwwİKAIN www. M Present value of $1, PVF WWW ME SEKOLA wwwwww 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 My Questions | bartl... 0.780 0.742 0.672 0.608 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 d 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.700 0.686 0.673 0.610 0.552 0.453 0.372 PV = FV C 1 [(1+0) 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.701 0.681 0.661 0.642 Appendix B (concluded) Present value of $1 0.623 0.605 0.587 0.570 0.554 0.478 0.412 0.307 0.228 4% 0.962 0.925 0.889 Block 17e_AppB.pdf a... 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.601 0.577 0.534 0.513 0.494 0.475 0.456 0.375 0.308 0.208 0.141 0.952 0.907 0.864 0.823 0.784 0.746 Ped 0.677 0.645 0.614 0.585 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 Percent ded 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.394 0.371 0.350 0.331 0.312 0.233 0.097 0.054 Time & Attendance: 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 MIMINI 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258 0.184 0.131 0.067 0.034 Percent 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340) 0.315 0.292 0.270 0.232 0.215 0.099 0.046 0.021 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 meld 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.116 0.075 0.032 0.013 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 bile inimbiak 0.386 0.350 0.319 0.290 0.263 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Educatio: 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.009 11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 K 0.3117 0.286 0.258 0.232 0.209 0.188 0.153 0.138 0.124 0.005 12% 0.893 0.797 0.712 0.636 0.567 0.507 JAA 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.130 0.059 0.033 0.003 PATAR
Transcribed Image Text:Appendix B Period 1 EN M44 19 3 NI DJ On 13 16 19 30 wwwİKAIN www. M Present value of $1, PVF WWW ME SEKOLA wwwwww 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 My Questions | bartl... 0.780 0.742 0.672 0.608 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 d 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.700 0.686 0.673 0.610 0.552 0.453 0.372 PV = FV C 1 [(1+0) 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.701 0.681 0.661 0.642 Appendix B (concluded) Present value of $1 0.623 0.605 0.587 0.570 0.554 0.478 0.412 0.307 0.228 4% 0.962 0.925 0.889 Block 17e_AppB.pdf a... 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.601 0.577 0.534 0.513 0.494 0.475 0.456 0.375 0.308 0.208 0.141 0.952 0.907 0.864 0.823 0.784 0.746 Ped 0.677 0.645 0.614 0.585 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 Percent ded 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.394 0.371 0.350 0.331 0.312 0.233 0.097 0.054 Time & Attendance: 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 MIMINI 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258 0.184 0.131 0.067 0.034 Percent 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340) 0.315 0.292 0.270 0.232 0.215 0.099 0.046 0.021 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 meld 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.116 0.075 0.032 0.013 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 bile inimbiak 0.386 0.350 0.319 0.290 0.263 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Educatio: 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.009 11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 K 0.3117 0.286 0.258 0.232 0.209 0.188 0.153 0.138 0.124 0.005 12% 0.893 0.797 0.712 0.636 0.567 0.507 JAA 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.130 0.059 0.033 0.003 PATAR
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