Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $56 million. There are 10 million outstanding shares. The company has traditionally paid out 50% of earnings by repurchases and reinvested the remaining earnings. With reinvestment, the company has generated steady growth averaging 5% per year. Assume the cost of equity is 12%. a. Calculate Surf & Turf's current stock price, using the constant-growth DCF model. (Hint. Take the easy route and estimate overall market capitalization.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current stock price b. Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year's dividend will be $2.80 per share. The CFO reassures investors that the company will continue to pay out 50% of earnings and reinvest 50%. All future payouts will come as dividends, however. What would be Surf & Turf 's stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price
Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $56 million. There are 10 million outstanding shares. The company has traditionally paid out 50% of earnings by repurchases and reinvested the remaining earnings. With reinvestment, the company has generated steady growth averaging 5% per year. Assume the cost of equity is 12%. a. Calculate Surf & Turf's current stock price, using the constant-growth DCF model. (Hint. Take the easy route and estimate overall market capitalization.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current stock price b. Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year's dividend will be $2.80 per share. The CFO reassures investors that the company will continue to pay out 50% of earnings and reinvest 50%. All future payouts will come as dividends, however. What would be Surf & Turf 's stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price
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
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Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $56 million. There
are 10 million outstanding shares. The company has traditionally paid out 50% of earnings by repurchases and reinvested the
remaining earnings. With reinvestment, the company has generated steady growth averaging 5% per year. Assume the cost of equity
is 12%.
a. Calculate Surf & Turf's current stock price, using the constant-growth DCF model. (Hint. Take the easy route and estimate overall
market capitalization.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Current stock price
b. Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year's dividend will be $2.80 per
share. The CFO reassures investors that the company will continue to pay out 50% of earnings and reinvest 50%. All future payouts
will come as dividends, however. What would be Surf & Turf's stock price? (Do not round intermediate calculations. Round your
answer to 2 decimal places.)
Stock price
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