Justin Cement Company has had the following pattern of earnings per share over the last five years: Year 20X1 20X2 20X3 20X4 20X5 Earnings per Share $ 11.00 11.55 12.13 12.55 13.42 The earnings per share have grown at a constant rate (on a rounded basis) and will continue to do so in the future. Dividends represent 40 percent of earnings. a. Project earnings and dividends for the next year (20X6). Note: Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your answers to 2 decimal places. Earnings Dividend 20X6 b. If the required rate of return (Ke) is 13 percent, what is the anticipated stock price (Po) at the beginning of 20X6? Note: Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your answer to 2 decimal places. Anticipated stock price
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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