Company Ts current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = .25). Current book value per share is $35. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and the company increases the payout ratio to 60%. The company does not plan to issue or retire shares. The cost of capital is 9.5%. a.What is stock T worth?
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Company Ts current
cash dividends (payout ratio = .25). Current book value per share is $35. The company has
5 million shares outstanding.
Assume that ROE and payout ratio stay constant for the next four years. After that,
competition forces ROE down to 10% and the company increases the payout ratio to 60%.
The company does not plan to issue or retire shares. The cost of capital is 9.5%.
a.What is stock T worth?
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- Company Ts current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = .25). Current book value per share is $35. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and the company increases the payout ratio to 60%. The company does not plan to issue or retire shares The cost of capital is 9 5% What is stock T worth? How much of stock T’s value is attributable to growth opportunities?Shirley and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. After that time, the company plans on paying a constant $1 a share dividend indefinitely. Given a required return of 14% p.a., what is the value of this stock?The Red Bud Company pays a constant dividend of $3.20 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8.8 percent?
- Su Lee's Cookware pays a constant dividend of $0.75 a share. The company announced today that they will continue to pay this for another 3 years after which time they will discontinue operations. What is one share of this stock worth today if the required rate of return is 18 percent?NikulGeneral Importers announced that it will pay a dividend of $3.65 per share one year from today. After that, the company expects a slowdown in its business and will not pay a dividend for the next 4 years. Then, 6 years from today, the company will begin paying an annual dividend of $1.75 forever. The required return is 11.4 percent. What is the price of the stock today? Multiple Choice O $3.28 $11.31 O $13.24 O $12.22 O $15.35
- SG Ltd. has historically paid a dividend of $2.50 to its shareholders semi-annually. The company has decided however that it will only maintain this policy for two more years, after which they will switch to an annual dividend that follows the constant growth rate of dividend policy. Determine the current price of the stock if the annual dividend growth rate will be set to 2% by the company and the nominal rate of return in the market is 9%.The common stock for Hightower Corporation currently sells for $62. If a new issue is sold, the flotation costs will be 6 percent. The company pays 50percent of its earnings in dividends (and expects to continue to do so), and a $4 dividend was recently paid. Earnings per share 5 years ago were $5.Earnings are expected to continue to grow at the same rate as during the past 5 years. The firm's marginal tax rate is 30 percent. Calculate the cost of (a)internal equity and (b) external equity.Wyatt oil presently pays no dividend. You anticipate Wyatt Oil will begin paying an annual dividend of $0.45 per share two years from today (T-2) and you expect dividends to grow by 3.4% per year thereafter. If Wyatt Oil's cost of equity capital is 11.4%, then the value of one share of Wyatt oil today is closest to: OA. $5.63 OB. $3.55 OC. $5.05 OD. $0.45 OE. $3.95 OF. $4.53 H
- Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 1.2 million shares that are outstanding. Shareholders require a 8% rate of return from Consolidated stock. a. What is the price of Consolidated stock? (Do not round intermediate calculations.) b. What is the total market value of its equity? (Enter your answer in millions.) Consolidated now decides to increase next year’s dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year. c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.)Please correct answer and don't use hand raitingConsolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.7 million shares that are outstanding. Shareholders require a 10% rate of return from Consolidated stock. a. What is the price of Consolidated stock? (Do not round intermediate calculations.) b. What is the total market value of its equity? (Enter your answer in millions.) Consolidated now decides to increase next year’s dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year. c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.) d. What will be the total present value of dividends paid each year on the new shares that the company will need to issue? (Enter your answer in millions.) e. What will be the transfer of value from the old shareholders to the new shareholders?…