Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year’s earnings are forecasted at $88 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 14%. 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.) b. Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year’s dividend will be $4.40 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?
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
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.
Y8
Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year’s earnings are
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