Company Q's current return on equity (ROE) is 16%. It pays out 60 percent of earnings as cash dividends (payout ratio =0.60). Current book value per share is $57. Book value per share will grow as Q reinvests earnings.Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to12.5% and the payout ratio increases to 0.70. The cost of equity is 12.5%.a. What are Q's EPS and dividends in years 1, 2, 3, 4, and 5?b. What is Q's stock worth per share?Complete this question by entering your answers in the tabs below.Required ARequired BWhat are Q's EPS and dividends in years 1, 2, 3, 4, and 5?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.Year12EPSDividends345< Required ARequired B>

To solve this, we need to perform the following steps:Calculate the Earnings Per Share (EPS) for…

Answered: Company Q's current return on equity…

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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A company currently has earnings (Eo) of $4.50 and a dividend (Do) of $0.45. The firm's current return on equity (ROE) is 50%. The firm will maintain the same dividend payout and ROE over the next two periods. Then it will transition in a linear reduction in years 3, 4, 5, and 6 to a growth of 3%. The firm will then grow at 3% to perpetuity. The firm's beta is presently 1.8, but this will transition to 1 over the same period. The risk-free rate is 4% and the market risk premium is 6%. ROE is expected to be 10% beginning in year 6 to perpetuity. What is the present value of this firm's equity using a three-stage model with linear transition in years 3, 4, 5, and 6? $104.32 $125.73 $119.46 $111.01
Banco Tech is an early stage financial technology firm. Earnings this year where $20 per share and are expected to grow at 20% per year for the next three years. Banco does not plan to pay a dividend until three years time, when the payout ratio will be 43%. Dividends are expected to grow at 6% thereafter. The required rate of return is 9%. Calculated intrinsic value.
A company currently has earnings (Eg) of $5.00 and a dividend (Do) of $0.50. The firm's current return on equity (ROE) is 40%. The firm will maintain the same dividend payout and ROE over the next two periods. Then it will transition in a linear reduction in years 3, 4, 5, and 6 to a growth of 3%. The firm will then grow at 3% to perpetuity. The firm's beta is presently 1.4, but this will transition to 1 over the same period. The risk-free rate is 4% and the market risk premium is 6%. ROE is expected to be 10% beginning in year 6 to perpetuity. What is the present value of this firm's equity using a three-stage model with linear transition in years 3, 4, 5, and 6? O $105.12 $94.59 O $82.19 O $119.46
XYZ Co. will pay a $3.20 per share dividend at the end of the year. The dividend growth rate = 8.5% per year Stock Price = $62.20 What is the required rate of return?
The current market price of ABCD's stock is $30 per share. ABCD just paid a $2 dividend and its dividend is expected to grow by 5% in the coming year. The required rate of return for ABCD is 15%. What is ABCD's dividend yield and its capital gains yield? a. 6.7%; 8.3% b. 8%; 7% c. 5%; 10% d. 7%; 8% e. 10%; 5%
Company Q's current return on equity (ROE) is 20%. It pays out 45 percent of earnings as cash dividends (payout ratio 0.45). Current book value per share is $56. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next two years. After that, competition forces ROE down to 10.0% and the payout ratio increases to 0.80. The cost of capital is 11.0%. Question: What is Q's stock worth per share? O 106.1 O 121.7 O 111.6 118.2 O 74.9
Barton Industries expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g = 4.9%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 4.5% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. _____% What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places. _____%
Suppose Kaspi Bank is trading share at 25$ today. The company pays dividend of 0.25. The analysts claimed that in one year, target price will be 32$. What is the expected return?
Gordon Growth Company is expected to pay a dividend of $4 next period and dividends are expected to grow at 6% per year. The required return is 16%. What is the price expected to be in year 4? a. $40 b. $10 c. $41.6 d. $50.50
Company Z-prime's earnings and dividends per share are expected to grow by 4% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year's dividend is $9, the cost of equity is 9%, and next year's EPS is $14. What is Z-prime's stock price? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Stock price
Summit Systems will pay an annual dividend of $1.56 this year. If you expect Summit's dividend to grow by 5.8% per year, what is its price per share if the firm's equity cost of capital is 10.9%? The price per share is $ (Round to the nearest cent.) M
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?

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