INV3 P6a You are interested in determining the intrinsic value of Hoffman Inc. Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely. Lastly, your estimate of the required return on the firm’s equity is 12%. Hoffman’s recently published annual report shows the following financial relationships: Assets = 1.4 x Equity Current Assets = 1.7 x Current Liabilities Sales = 1.5 x Assets Net Income = 8% x Sales Dividends = 30% x Net Income Earnings per share (Basic) = $0.80 per share Determine the growth rate of the company for the prior and for each of the next two years.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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INV3 P6a

You are interested in determining the intrinsic value of Hoffman Inc.

Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely.

Lastly, your estimate of the required return on the firm’s equity is 12%.

Hoffman’s recently published annual report shows the following financial relationships:

Assets = 1.4 x Equity

Current Assets = 1.7 x Current Liabilities

Sales = 1.5 x Assets

Net Income = 8% x Sales

Dividends = 30% x Net Income

Earnings per share (Basic) = $0.80 per share

Determine the growth rate of the company for the prior and for each of the next two years.

 

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