Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $82 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 10%. a. Calculate Surf & Turf's current stock price, using the constant-growth DCF model. (Hint: Take the easy route and estimate overall market capitalization.) b. Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year's dividend will be $4.10 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? Note: For all requirement, do not round intermediate calculations. Round your answers to 2 decimal places. Answer is complete but not entirely correct. 0.00 x a. Current stock price b. Stock price S S 61.50
Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $82 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 10%. a. Calculate Surf & Turf's current stock price, using the constant-growth DCF model. (Hint: Take the easy route and estimate overall market capitalization.) b. Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year's dividend will be $4.10 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? Note: For all requirement, do not round intermediate calculations. Round your answers to 2 decimal places. Answer is complete but not entirely correct. 0.00 x a. Current stock price b. Stock price S S 61.50
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:Problem 15-16 Repurchases and the DCF model
Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $82 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 10%.
a. Calculate Surf & Turf's current stock price, using the constant-growth DCF model. (Hint. Take the easy route and estimate overall
market capitalization.)
b. Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year's dividend will be $4.10 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?
Note: For all requirement, do not round intermediate calculations. Round your answers to 2 decimal places.
Answer is complete but not entirely correct.
a. Current stock price
b. Stock price
0.00 X
61.50 X
S
S
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