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?

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?

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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Similar questions

You are considering opening a new plant. The plant will cost $95.1 million up front and will take one year to build. After that it is expected to produce profits of $31.8 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ million. (Round to one decimal place.)
Bhupatbhai
Alpha Industries is considering a project with an initial cost of $8.8 million. The project will produce cash inflows of $1.68 million per year for 8 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.85 percent and a cost of equity of 11.43 percent. The debt-equity ratio is .68 and the tax rate is 40 percent. What is the net present value of the project? O $695,448 O $772,720 O $662,331 $803,629 O $439,544 A
Suppose you are running a capital budgeting analysis on a project with an estimated cost of $3 million. The project is considered similar to the existing lines of businesses for the company. Given the cash situation, the company will fund the project completely with a new debt of $3 million. This new debt will be issued at 8% interest for 10 years. The company has an estimated 11% WACC. When conducting the capital analysis on this project, what should be your discount rate (cost of capital) for the project? Explain your answer briefly.
You have an opportunity to invest $ 108 000 now in return for $ 79500 in one year and $ 30 comma 300 in two years. If your cost of capital is 8.5 %, what is the NPV of this investment? The NPV will be $
c) Consider this question: XYZ Company can borrow money at an interest rate of 10% (that's their Cost of Capital). They have an opportunity to invest in a project that will generate returns (Free Cash Flows) over the next three years. One year from now, the project will generate $80,000 in FCF, two years from now the project will generate $90,000 in FCF, and three years from now the project will generate $100,000 in FCF. The project will require an investment of $230,000. Is it worth doing? Time 1 year from now 2 years from now 3 years from now Free Cash Flow $ $ Cost of Capital 10% 80,000 90,000 100,000
A firm is considering a project that will generate perpetual after-tax cash flows of $16,000 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 6 percent on an after-tax basis. The firm's D/E ratio is 0.6. What is the most the firm can pay for the project and still earn its required return? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. Maximum the firm can pay
Vijay
Alpha Industries is considering a project with an initial cost of $8.5 million. The project will produce cash inflows of $1.51 million per year for 9 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.76 percent and a cost of equity of 11.37 percent. The debt-equity ratio is .65 and the tax rate is 40 percent. What is the net present value of the project?
Company ABC invests in a long-term project that will start generating cash flows 10 years from now (and will then continue generating cash flows forever). The first cash flow is going to be equal to $22 million. Cash flows will then grow 2% per year forever. If the project costs $460 million today, is it a good investment if interest rates are (and are going to be forever) equal to 5%?
You have found an investment opportunity that will provide annual cash flows of $1,234 for 5 years and costs $6789 today. If the required return is 12%, what is the profitability index for this opportunity?
Wizard Co. is considering a project that will require $500,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 30%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $145,000? 20.3% 17.3% 14.2% 16.2% Determine what the project’s ROE will be if its EBIT is –$60,000. When calculating the tax effects, assume that Wizard Co. as a whole will have a large, positive income this year. -9.2% -8.4% -8.8% -7.6% Wizard Co. is also considering financing the project with 50% equity and 50% debt. The interest rate on the company’s debt will be 13%. What will be the project’s ROE if it produces an EBIT of $145,000? 25.2% 36.2% 29.9% 31.5% What will be the project’s ROE if it produces an EBIT of –$60,000 and it finances 50% of the project with equity and 50% with debt? When calculating the…

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