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Halliford Corporation expects to have earnings this coming year of $2.87 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two​ years, the firm will retain 51% of its earnings. It will then retain 20% of its earnings from that point onward. Each​ year, retained earnings will be invested in new projects with an expected return of 25.13% per year. Any earnings that

Halliford Corporation expects to have earnings this coming year of $2.87 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two​ years, the firm will retain 51% of its earnings. It will then retain 20% of its earnings from that point onward. Each​ year, retained earnings will be invested in new projects with an expected return of 25.13% per year. Any earnings that

Essentials Of Investments
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
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Halliford Corporation expects to have earnings this coming year of $2.87 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two​ years, the firm will retain 51% of its earnings. It will then retain 20% of its earnings from that point onward. Each​ year, retained earnings will be invested in new projects with an expected return of 25.13% per year. Any earnings that are not retained will be paid out as dividends. Assume​ Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If​ Halliford's equity cost of capital is 8.8%​, what price would you estimate for Halliford​ stock?

​Note: Remenber that growth rate is computed​ as: retention rate

×

rate of return.

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