Please correct answer and don't use hand rating Total Return =ke = Dividend Yield (DY) + Capital Gains Yield (CGY)=D1/PO+ (P1 - PO)/PO D1/PO + g=Estimation 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?

We'll use the provided formulas and given information to calculate the price per share of Tobias…

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

See similar textbooks

Similar questions

As a financial analyst working for CSFB your job is to evaluate the equity value of the WIFI Inc. Your research identified the following information about that firm: it would pay an annual dividend of $1.20 per share next year (in 2022) and the required rate of return on capital is 20%. (a) Suppose that dividends are expected to stay constant forever. What is the maximum amount you would pay today (in 2021) for WIFI Inc? For parts b, c and d assume that dividends grow at a constant 3% rate a year forever. (b) What is the maximum amount you would pay today (in 2021) for WIFI Inc’s share of stock? (c) What is the capital gains yield for WIFI Inc.? (d) What is the dividend yield for WIFI Inc.? For part (e) assume that the dividends will be as follows $1.20 in 2022, $1.40 in 2023 and $1.60 in 2024. After that, dividends are projected to increase at a constant rate of 2% per year forever. (e) How much are you willing to pay today (in 2021) to buy one share of this stock?
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.
Banco Tech is an early stage financial technology firm. Earnings this year where $20 per share and are expected to grow at 20% per year for the next three years. Banco does not plan to pay a dividend until three years time, when the payout ratio will be 43%. Dividends are expected to grow at 6% thereafter. The required rate of return is 9%. Calculated intrinsic value.
bh
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
I need help with this problem and how to set it up in excel with formulas.
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
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
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
Need help with this financial accounting question
You have invested in a business that proudly reports that it is profitable. Your investment of $5,000 has produced a profit of $300. The managers think that if you leave your $5,000 invested with them, they should be able to generate $300 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 8%. Should you remain invested in this firm? The expected return of your investment is %. (Round to one decimal place.) (Select from the drop-down menus.) If projects that are similar in horizon and risk are offering an expected return of 8%, then this business earning your opportunity cost of capital, and you should remain invested invest elsewhere
Sidman Products's common stock currently sells for $42 a share. The firm is expected to earn $3.36 per share this year and to pay a year-end dividend of $2.40, and it finances only with common equity. a. If investors require an 8% return, what is the expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % b. If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? (Hint: g = (1-Payout ratio)ROE). Do not round intermediate calculations. Round your answer to the nearest cent. per share

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS