(Measuring growth) Thomas, Inc.'s retum on equity is 19 percent and management has plans to retain 21 percent of earnings for investment in the company. a. What will be the company's growth rate? b. How would the growth rate change if management (i) increased retained earnings to 34 percent or (ii) decreased retention to 15 percent? a. The company's growth rate will be %. (Round to two decimal places.) b. (i) If management increased retained earnings to 34%, the growth rate would be %. (Round to two decimal places.) b. (ii) If management decreased retention to 15%, the growth rate would be %. (Round to two decimal places.)

(Measuring growth) Thomas, Inc.'s retum on equity is 19 percent and management has plans to retain 21 percent of earnings for investment in the company. a. What will be the company's growth rate? b. How would the growth rate change if management (i) increased retained earnings to 34 percent or (ii) decreased retention to 15 percent? a. The company's growth rate will be %. (Round to two decimal places.) b. (i) If management increased retained earnings to 34%, the growth rate would be %. (Round to two decimal places.) b. (ii) If management decreased retention to 15%, the growth rate would be %. (Round to two decimal places.)

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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IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. What is IBM's cost of equity capital? A. 9.65% B. 10.23% C. 12.36% D. 11.44% E. 10.89%
A company currently has earnings (Eg) of $5.00 and a dividend (Do) of $0.50. The firm's current return on equity (ROE) is 30%. The firm will maintain the same dividend payout and ROE over the next two periods. Then it will transition in a linear reduction in years 3, 4, and 5 to a growth of 3%. The firm will then grow at 3% to perpetuity. The firm's beta is presently 1.8, but this will transition to 1 over the same period. The risk-free rate is 4% and the market risk premium is 6%. Constant growth ROE is expected to be 10%. What is the present value of this firm's equity using a three- stage model with linear transition in years 3, 4, and 5? O $65.12 O $76.19 O $72.19 O $84.56
A company currently has earnings (Eo) of $4.50 and a dividend (Do) of $0.45. The firm's current return on equity (ROE) is 50%. The firm will maintain the same dividend payout and ROE over the next two periods. Then it will transition in a linear reduction in years 3, 4, 5, and 6 to a growth of 3%. The firm will then grow at 3% to perpetuity. The firm's beta is presently 1.8, but this will transition to 1 over the same period. The risk-free rate is 4% and the market risk premium is 6%. ROE is expected to be 10% beginning in year 6 to perpetuity. What is the present value of this firm's equity using a three-stage model with linear transition in years 3, 4, 5, and 6? $104.32 $125.73 $119.46 $111.01
Net Income (NI) could be thought of as earnings available for dividends to equity shareholders, assuming none is needed to sustain current operations without further growth. So, let us assume NI will be $500 in year 1 and $525 in year two. Then, the company expects to sell this division for $3,000 at the end of year 3. If the discount rate is 14%, what is the present value of this business division?
A company currently has earnings (Eg) of $5.00 and a dividend (Do) of $0.50. The firm's current return on equity (ROE) is 40%. The firm will maintain the same dividend payout and ROE over the next two periods. Then it will transition in a linear reduction in years 3, 4, 5, and 6 to a growth of 3%. The firm will then grow at 3% to perpetuity. The firm's beta is presently 1.4, but this will transition to 1 over the same period. The risk-free rate is 4% and the market risk premium is 6%. ROE is expected to be 10% beginning in year 6 to perpetuity. What is the present value of this firm's equity using a three-stage model with linear transition in years 3, 4, 5, and 6? O $105.12 $94.59 O $82.19 O $119.46
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Consider a company that has the following financial information for 2022: net income $492,000; dividend payout $223,000; current assets $492,000; fixed assets $8,028,000; common equity $4,460,000; retained earnings $984,000. What is the sustainable growth rate? What is the internal growth rate?
None
Enrich, Inc., has expected earnings of $4 per share for next year. The firm's ROE is 16%, and its earnings retention ratio is 60%. If the firm's market capitalization rate is 12%, what is the present value of its growth opportunities (PVGO)? $28.88 $38.25 O $33.34 $66.67
Question 5
Loreto Inc. has the following financial ratios: asset turnover = 2.40; net profit margin (i.e., net income/sales) = 5%; payout ratio = 30%; equity/assets = 0.40. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate?

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