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What should be the current share price of CARLA?

What should be the current share price of CARLA?

Essentials Of Investments
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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CARLA Ltd. had earnings per share of $4 as of December 31, 2022, but paid no dividends. Earnings were expected to grow at 14.3 percent per year for the following five years. CARLA Ltd. will start paying dividends for the first time on December 31, 2027, distributing 50 percent of its earnings to shareholders. Earnings growth will be 5 percent per year for the next six years (that is, from January 1, 2028, through to December 31, 2033). Starting on December 31, 2033, CARLA Ltd. will begin to pay out 80 percent of its earnings in dividends and earnings growth will stabilize at 2 percent per year in perpetuity.The required rate of return on CARLA stock is 10 percent. What should be the current share price of CARLA? (Round intermediate calculations to 6 decimal places, e.g. 15.612125 and the final answer to 2 decimal places, e.g. 15.61.) LA S $ Current share price of CARLA
Transcribed Image Text:CARLA Ltd. had earnings per share of $4 as of December 31, 2022, but paid no dividends. Earnings were expected to grow at 14.3 percent per year for the following five years. CARLA Ltd. will start paying dividends for the first time on December 31, 2027, distributing 50 percent of its earnings to shareholders. Earnings growth will be 5 percent per year for the next six years (that is, from January 1, 2028, through to December 31, 2033). Starting on December 31, 2033, CARLA Ltd. will begin to pay out 80 percent of its earnings in dividends and earnings growth will stabilize at 2 percent per year in perpetuity.The required rate of return on CARLA stock is 10 percent. What should be the current share price of CARLA? (Round intermediate calculations to 6 decimal places, e.g. 15.612125 and the final answer to 2 decimal places, e.g. 15.61.) LA S $ Current share price of CARLA
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