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Miles Co is considering a bid for Stone Co. Both companies are stock-market listed and are in  the same business sector. Financial information on Stone Co, which is shortly to pay its annual  dividend, is as follows:  Number of ordinary shares 5 million  Ordinary share price $3.30  Earnings per share 40 cents  Proposed payout ratio 60%  Dividend per share one year ago 23.3 cents  Dividend per share two years ago 22 cents  Average sector price/earnings ratio 10   a. Calculate the value of Stone Co using the price/earnings ratio method.  b. Using a cost of equity of 13% and a dividend growth rate of 4.5%, calculate the value of  Stone Co using the dividend growth model.  c. Calculate the market capitalization of Stone Co

Miles Co is considering a bid for Stone Co. Both companies are stock-market listed and are in  the same business sector. Financial information on Stone Co, which is shortly to pay its annual  dividend, is as follows:  Number of ordinary shares 5 million  Ordinary share price $3.30  Earnings per share 40 cents  Proposed payout ratio 60%  Dividend per share one year ago 23.3 cents  Dividend per share two years ago 22 cents  Average sector price/earnings ratio 10   a. Calculate the value of Stone Co using the price/earnings ratio method.  b. Using a cost of equity of 13% and a dividend growth rate of 4.5%, calculate the value of  Stone Co using the dividend growth model.  c. Calculate the market capitalization of Stone Co

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Miles Co is considering a bid for Stone Co. Both companies are stock-market listed and are in 
the same business sector. Financial information on Stone Co, which is shortly to pay its annual 
dividend, is as follows: 
Number of ordinary shares 5 million 
Ordinary share price $3.30 
Earnings per share 40 cents 
Proposed payout ratio 60% 
Dividend per share one year ago 23.3 cents 
Dividend per share two years ago 22 cents 
Average sector price/earnings ratio 10

 

a. Calculate the value of Stone Co using the price/earnings ratio method. 
b. Using a cost of equity of 13% and a dividend growth rate of 4.5%, calculate the value of 
Stone Co using the dividend growth model. 
c. Calculate the market capitalization of Stone Co

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