Earnings in the most recently concluded fiscal year were $6.28. The company will retain all its earnings this year (from t=0 to t=1 ), reinvesting in new projects with a return on new investment of 44.0%. The next year (from t=1 to t=2 ), the company will retain 85.0% of its earnings. Return on new investment is expected to be 30.0%. In the following year (from t=2 to t=3 ), the company will retain 69.0% of its earnings with an expected return on new investment of 20.0%. The company will then enter a period of stable growth, retaining 49.0% of its earnings in perpetuity. a) What are the expected dividends per share for each period from t=1 to t=3 ? The expected dividends per share for t=1 is $$. (Round your answer to four decimal places)
ClapTrap is a rapidly growing image messaging company. The company's growth strategy requires rapid reinvestment currently, with dividend payouts increasing as growth opportunities gradually disappear.
You have the following financial information about ClapTrap:
- Earnings in the most recently concluded fiscal year were $6.28. The company will retain all its earnings this year (from t=0 to t=1 ), reinvesting in new projects with a
return on new investment of 44.0%. - The next year (from t=1 to t=2 ), the company will retain 85.0% of its earnings. Return on new investment is expected to be 30.0%.
- In the following year (from t=2 to t=3 ), the company will retain 69.0% of its earnings with an expected return on new investment of 20.0%.
- The company will then enter a period of stable growth, retaining 49.0% of its earnings in perpetuity.
a) What are the expected dividends per share for each period from t=1 to t=3 ?
The expected dividends per share for t=1 is $$.
(Round your answer to four decimal places)
The expected dividends per share for t=2 is $$
(Round your answer to four decimal places)
The expected dividends per share for t=3 is $$
(Round your answer to four decimal places)
b) ClapTrap's common stock currently trades at $60.8 per share, and you estimate the
The return on new investment will be .............% for ClapTrap when it reaches its stable growth perpetuity phase.
(Round your answer to two decimal places)
Step by step
Solved in 3 steps
