Fontaine Inc. recently reported net income of $2 million. It has 330,000 shares of common stock, which currently trades at $31 a share. Fontaine continues to expand and anticipates that one year from now its net income will be $3.5 million. Over the next year it also anticipates issuing an additional 66,000 shares of stock, so that one year from now it will have 396,000 shares of common stock. Assuming its price/earnings ratio remains at its current level, what will be its stock price 1 year from now?
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- FA corporation recently reported a net ncome of $2,000,000. The company has 500,000 shares of common stock that currently trade for $40 per share . The company continues to expand and anticipates that one year from now its net income will be $3.25 million. Over the next yesr the company also anticipates issuing an additional 150,000 shares ,so that one year from now the company will have 650,000 shares of common stock . a) Assuming the company's price to earnings ratio remains at its current level, what will be the company's stock price one year from now ? b) The PE ratio is a very common method used by investors to get a quick calculation on the market's perception of a company. Evaluate the fornula used to calculate the PE ration focusing on the limitations of this method of valuation ?At year end, Sampson Company's balance sheet showed total assets of $80 million, total liabilities of $50 million, and 1,000,000 shares of common stock outstanding. Next year, Malta is projecting that it will have net income of $2.9 million. If the average P/E multiple in Malta's industry is 16, (and this is an average stock) what should be the price of Sampson's stock? O $50.43 O $46.40 O $44.57 O $41.60The Link Resport & Spa Company has 75,000 shares of stock outstanding. The company is expected to have total earnings next year of $500,000. The company plans to reinvest $275,000 in projects earning an (equity) return of 15%, and to return the remainder of its earnings to shareholders in the form of dividends or stock repurchases. The first dividend or repurchse payments will be made exactly one year from today. In all future years, the market expects the company's reinvestment rate and the return on reinvested earnings to remain constant. The required return on equity is 12%. What is the value of the firm today, if it 1.) uses the remaining $225,000 to pay dividends, and will continue this payout policy (as a percent of earnings) in future years? 2) uses 40% of its annual payout to repurchase stock, and uses the remainder to pay divdends (and will continue this policy in future years)? Assume that the firm will use the remaining $225,000 to pay dividends (and will continue this…
- At the end of 2020, CVN ltd. had 120,000 shares of common stock outstanding and had earnings availablefor common of $300,000. TPO ltd., at the end of 2020, had 15,000 shares of common stock outstanding andhad earned $28,000 for common shareholders. CVN’s earnings are expected to grow at an annual rate of 6%in next 6 years, and TPO’s growth rate in earnings would be 12% per year in next 6 years. Calculate earnings per share (EPS) for CVN and TPO for year 2020 and each of the next 6 years if CVNacquires TPO at a ratio of exchange of 1.3. Describe the initial effect and long run effect on EPS of CVN and TPO. Does merger look beneficial forCVN and TPO? Why or why not?I have just purchased 200 shares of LTC Limited preferred shares. It is currently selling for $40 per share. The annual dividend is $3.40 per share. At the same period, National System has just paid dividend of $1.00. It is estimated that the company's growth rate to be 5 percent p.a. for the next 2 years. After that, dividends are expected to grow at a rate of 10 percent p.a. indefinitely. a) What is the expected return on LTC shares? b) If my required rate of return is 8%, will you advise me to buy more shares of LTC shares or sell what I have under the market pricing? c) If I require a 12% rate of return on equity, what is my expected current price of the National System's share? d) Based on parts (b) and (c) above, explain why an investor would expect the different rate of return on the shares under consideration?Please can I get detailed step by step workings for this question?
- Pimento Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares outstanding at a price of $27.50 per share. Pimento had been following a 100% dividend payout policy until now but would now like to shift to the Residual Dividend policy for this year. Dividends from this year’s earnings are paid next year. a) What is the EPS and DPS for Pimento under the 100% dividend payout policy? b) If the planned capital outlay is for $72 million and the target capital structure is 1.5:1, willPimento be able to pay dividends as per the Residual Dividend Policy? If so, what will be the dividend per share? Investors require a 22.72% rate of return. Ignore taxes. c) IfPimento shifts from a 100% payout policy to the residual dividend policy, what impact will this have on its stock price, assuming the firm earns 22.72% as its ROE? Support your argument through relevant computations. Which argument of the dividend policy decision would you have demonstrated…Little Oil has 1 million outstanding shares with a total market value of $20 million. The firm is expected to pay $1 million of dividends next year, and thereafter the amount paid out is expected to grow by 5 percent a year in perpetuity. Thus the expected dividend in year 2 is $1.05 million, 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 by a simultaneous issue of new shares. After that, the total amount paid out each year will be as previously forecasted, i.e., $1.05 million in year 2 and increasing by 5 percent a year in each subsequent year. Capital markets are perfect. The discount rate for equity for this company is 10%. a) At what price will the new shares be issued in year 1? b) How many shares will the firm need to issue? c) What will be the expected payments on these new shares,…Sd
- Ms. Manners Catering (MMC) has paid a constant $1.50 per share dividend to its common stockholders for the past 25 years. MMC expects to continue this policy for the next two years, and then bealin to increase the dividend at a constant rate equal to 2 percent per year into perpetuity. Investors require a 12 percent rate of return to purchase MMC's common stock What is the market value of MMC's common stock $1473 $1500 $11.54 $1530L. Sanders Manufacturing paid a dividend last year of $5 per share. The dividend is expected to grow at a constant rate of 8% per year. The price of L. Sanders Manufacturing's stock today is $29 per share. If L. Sandaers Manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. Based on the above information, the cost of new common stock is OA. 28.38%. OB. 31.40%. OC. 26.62%. OD. 24.12%. OE. None of the above.The Beta Company has 1,000,000 common share outstanding. The company paid dividends of $2,000,000 on common stock this year. Dividends are expected to grow at a rate of 5% per year and the required rate of return on common stock is 6%. What is the value of a share of Beta Company's common stock?