Glenco announced earnings per share of $6.10 and just paid a $1.00 dividend per share. The will reinvest the difference back in their business. They intend to payout 30% of their earnings as a dividend in the next 3 years, but raise that to 50% in the 4th year. They will maintain a 50% dividend payout for the forseeable future and continue to reinvest the rest. Their new project investments are expected to achieve a 15% rate of return. Their cost of capital is 14%. What price would you be willing to pay to purchase 1 share of this stock?
Glenco announced earnings per share of $6.10 and just paid a $1.00 dividend per share. The will reinvest the difference back in their business. They intend to payout 30% of their earnings as a dividend in the next 3 years, but raise that to 50% in the 4th year. They will maintain a 50% dividend payout for the forseeable future and continue to reinvest the rest. Their new project investments are expected to achieve a 15% rate of return. Their cost of capital is 14%. What price would you be willing to pay to purchase 1 share of this stock?
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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Question
![Glenco announced earnings per share of $6.10 and just paid a $1.00
dividend per share. The will reinvest the difference back in their business.
They intend to payout 30% of their earnings as a dividend in the next 3
years, but raise that to 50% in the 4th year. They will maintain a 50%
dividend payout for the forseeable future and continue to reinvest the rest.
Their new project investments are expected to achieve a 15% rate of
return. Their cost of capital is 14%. What price would you be willing to pay
to purchase 1 share of this stock?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbce96a4c-19a2-4952-ab76-49d9ec69d611%2F2257c2ba-dc68-4678-887b-669d73c71d14%2Ftr0i23a_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Glenco announced earnings per share of $6.10 and just paid a $1.00
dividend per share. The will reinvest the difference back in their business.
They intend to payout 30% of their earnings as a dividend in the next 3
years, but raise that to 50% in the 4th year. They will maintain a 50%
dividend payout for the forseeable future and continue to reinvest the rest.
Their new project investments are expected to achieve a 15% rate of
return. Their cost of capital is 14%. What price would you be willing to pay
to purchase 1 share of this stock?
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