None Total Return =ke = Dividend Yield (DY) + Capital Gains Yield (CGY)= D1/PO+ (P1 - PO)/P0 = D1/PO + gEstimation of the Growth Rate (g): g = Retention Ratio * ROEQuestion: Tobias Industries expects to earn $100,000 this year. Earnings will grow 6% if thefirm makes no new investments. Jim Tobias, CEO of the firm, has the opportunity to investin a "new" line of business - which will complement their current products. The immediateoutlay for this opportunity is $200,000 and the earnings from the line will generate $80,00O in additional earnings (per year, in perpetuity). The earnings from this new line will growat 4 percent. Assuming the firm's discount rate is 12%, and 200,000 shares of TobiasIndustries stock is outstanding, answer the following?a) What is the price per share of Tobias stock without the cabinet line?b) What is the value of the growth opportunities which the "new" line offers?c) If the company invests in the "new" line, what would be the price of the stock?

Current expected earnings: $100,000Growth rate without new investment: 6%New investment cost:…

Answered: Total Return = ke = Dividend Yield (DY)…

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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