Halliford Corporation expects to have earnings this coming year of $2.93 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 48% of its earnings. It will then retain 18% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 18.48% 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 10.4%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate×rate of return.
Halliford Corporation expects to have earnings this coming year of $2.93 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 48% of its earnings. It will then retain 18% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 18.48% 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 10.4%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate×rate of return.
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
Halliford Corporation expects to have earnings this coming year of
retained earnings will be invested in new projects with an expected return of
$2.93
per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain
48%
of its earnings. It will then retain
18%
of its earnings from that point onward. Each year, 18.48%
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
10.4%,
what price would you estimate for Halliford stock?Note:
Remenber that growth rate is computed as: retention
rate×rate
of return.Expert Solution
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