Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 9, Problem 15P

Halliford Corporation expects to have earnings this earring year of $3 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 50% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford’s share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford’s equity cost of capital is 10%, what price would you estimate for Halliford stock?

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Halliford Corporation expects to have earnings this coming year of $3.18 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two​ years, the firm will retain 50% of its earnings. It will then retain 17% of its earnings from that point onward. Each​ year, retained earnings will be invested in new projects with an expected return of 21.81% per year. Any earnings that are not retained will be paid out as dividends. Assume​ Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If​ Halliford's equity cost of capital is 8.3%​, what price would you estimate for Halliford​ stock? Note​: Remenber that growth rate is computed​ as: retention rate×rate of return.
Rearden Metals expects to have earnings this coming year of $2.50 per share. Rearden plans to retain all of its earnings for the next year. For the subsequent three years, the firm will retain 50% of its earnings. It will then retain 25% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25% per year. Any earnings that are not retained will be paid out as dividends. Assume Rearden's shares outstanding remains constant and all earnings growth comes from the investment of retained earnings. If Rearden's equity cost of capital is 8%, then what is Rearden's stock price?
Halliford Corporation expects to have earnings this coming year of $3.15 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 52% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25.00% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 10.3%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate xrate of return. The current price per share is $52.21. (Round to the nearest cent.)
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