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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Harmony Corporation will pay a dividend of RM1.50 a share next year. After this, earnings and dividends are expected to grow at a 9% annual rate indefinitely. Investors currently require a rate of return of 13%. The company is considering the following two business strategies and wishes to determine the effect of these strategies on the market price per share of its stock. Strategy 1: Continuing the present strategy will result in the expected growth rate and required rate of return stated above. Strategy 2: Expanding Harmony Corporation sales will increase the expected dividend growth rate to 11% but will increase the risk of the company. As a result, the rate of return required by investors will increase to 16%. From the standpoint of market price per share, which strategy is better? Show relevant workings to support your answer.
the company will earn $3 per share next year and should be able to pay 25% as dividend. the company is expected to growth at 7% for 5 years, and then frowth at 5% in the long term. cost of equity of 12%. what is the present value of growth opportunity for this company? a. 5.34 b.-5.34 c.13.41 d.-13.41
Phosfranc Inc. is valuing the equity of a company using the free cash flow from equity, FCFE, approach and has estimated that the FCFE in the next three years will be $6.25, $7.70, and $8.36 million respectively. Beginning in year 4, the company expects the cash flows to increase at a rate of 4 percent per year for the indefinite future. It is estimated that the cost of equity is 12 percent. What is the value of equity in this company? (Do not round intermediate computations. Round final answer to the nearest million.) A) $77 million B) $95 million C) $109 million D) $60 million
Wild Berry (WB) will remain in business for one more year. At the end of next year, the firm will generate a liquidating cash flow of S370M in a boom year and S150M in a recession year; both states are equally likely. The cost of equity for the unlevered firm is rU = 10%. The firm's outstanding debt matures in a year and has amarket (and book) value of S150M today. The interest payment on this debt is S15M at the end of next year. The corporate tax is ?c = 35%. Corporate taxes is the only relevant market imperfection. 23. What s WB's value as an unlevered firm (VU )2 (A)5 236.4M (8)S 260.0M (€)5336.4M (D) $370.0M
Wild Berry (WB) will remain in business for one more year. At the end of next year, the firm will generate a liquidating cash flow of $370M in a boom year and S150M in a recession year; both states are equally likely. The cost of equity for the unlevered firm is rU = 10%. The firm's outstanding debt matures in a year and has amarket (and book) value of S150M today. The interest payment on this debt is S15M at the end of next year. The corporate tax is ?c = 35%. Corporate taxes is the only relevant market imperfection. 23. What s WB's value as an unlevered firm (VU )2 (A)$ 236.4M (B)$ 260.0M (€)5336.4M (D) S 370.0M
Walter Enterprises recently paid a dividend, D0, of $2.50. It expects to have nonconstant growth of 25% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 20%. 1. What is the firm's horizon, or continuing, value? Round your answer to the nearest cent. 2. What is the firm's intrinsic value today? Round your answer to the nearest cent.
Answer C and D correctly!
You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean's equity cost of capital is 11%, then the price of a share of Bean's stock is closest to: A. $53.31 B. $33.32 *C. $19.99 D. $13.33
Calculate the Present Value of Growth Opportunities (PVGO). Medtronic is expected to earn $5.72 next year. The company has a discount rate of 12% and is able to reinvest its earnings at an ROE of 17%. Currently, the company pays out all earnings in the form of a dividend. How much could they boost their stock price if they lowered their payout ratio to 37%? Hint: see slides 43-45. Note: Enter your answer with two decimals and without the $ sign. That is, if your answer is $50.514 then enter 50.51.
You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean's equity cost of capital is 12%, then what is the price of a share of Bean's stock? Bueble
Pharoah Inc., is expected to grow at a rate of 20.000 percent for the next five years and then settle to a constant growth rate of 12.000 percent. The company recently paid a dividend of $2.35. The required rate of return is 17.000 percent.Excel Template(Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you’ve been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) (a) Find the present value of the dividends during the rapid-growth period if dividends grow at the same rate as the company. (Round dividends to 3 decimal places, e.g. 3.351. Round present value of dividends to 2 decimal places, e.g. 15.20.) Present value of dividends $Type your answer here

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