Al's Infrared Sandwich Company had abook value of $18.00 at the beginningof the year, and the earnings per sharefor the past year was $7.41. Molly Miller,a research analyst at Miller, Moore &Associates, estimates that the bookvalue and earnings per share will growat 18.50 and 17.00 percent per year forthe next four years, respectively. Afterfour years, the growth rate is expectedto be 6 percent. Molly believes therequired return for the company is10.60 percent. What is the value pershare for Al's Infrared SandwichCompany?Note: Do not round intermediatecalculations. Round your answer to 2decimal places.

Here's how to calculate the value per share for Al's Infrared Sandwich Company:1. Dividend Discount…

Answered: Al's Infrared Sandwich Company had a…

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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Ceebros Builders is expanding very fast and is expected to grow at a rate of 25 percent for the next four years. The company recently paid a dividend of $3.60 but is not expected to pay any dividends for the next three years. In year 4, management expects to pay a $5.7 dividend and thereafter to increase the dividend at a constant rate of 7.0 percent. The required rate of return on such stocks is 17.5 percent. a. Calculate the present value of the dividends during the fast-growth period. (Round answer to 2 decimal places, e.g. 15.25.) Present value of dividends $
Innovative Group Ltd, an IT company, is undertaking a new project to develop software for Fair Supermarkets. As such, it is expected that the company has an ROE of 24% and a plowback ratio of 0.30. The forecasted earnings of the company for the first year from now are $2 per share. Investors expect a 12% rate of return on the company’s stock. (need full process) Calculate the price at which this company’s stock should sell using the constant-growth dividend discount model. Calculate the present value of growth opportunities for this company. If this company plans to reinvest only 20% of its earnings, will dropping the reinvestment rate from 30% to 20% be a good decision for the company? Why? Your valuation in part (a) is based on the new project undertaken by the company to develop software for Fair Supermarkets. However, recent developments have informed you that the company will not be able to continue to do this project…
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Sandhill Departmental Stores management has forecasted a growth rate of 40 percent for the next two years, followed by growth rates of 25 percent and 20 percent for the following two years. It then expects growth to stabilize at a constant rate of 7.5 percent forever. The firm paid a dividend of $3.90 recently. If the required rate of return is 14 percent, what is the current value of Sandhill's stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) Current value $Type your answer here
Ocasa Ltd. Just paid a dividend of $6.00 per share next year, and that the dividend will grow at the same rate as its profits. High profits are expected during this period, with the first three years of growth estimated to be 13%, 11% and 10% respectively, before returning to constant long+ term industry growth rate of 6% per year. The firm’s cost of equity is 15%. i. What is the firm’s share price today (P0)? ii. What is the expected share price next year (P1)? iii. Calculate the dividend yield for year 2. iv. Calculate the current capital gains yield (year 1).
Orkazana Corporation is experiencing rapid growth. Dividends are expected to grow at 30 percent per year during the next three years, 20 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 12 percent, and the stock currently sells for $80 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Projected dividend
Ten years ago, Video Toys began manufacturing and selling coin-operated arcade games. Dividends are currently $1.50 per share, having grown at a 13 percent compound annual rate over the past 5 years. That growth rate is expected to be maintained for the next 3 years, after which dividends are expected to grow at half that rate for 3 years. Beyond that time, Video Toys’s dividends are expected to grow at 4 percent per year. What is the current value of a share of Video Toys common stock if your required rate of return is 19 percent? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent. $ ______?
Esther’s Egg Farm is constructing its pro forma financial statements for this year. At year end, assets were $400,000 and accounts payable (the only current liabilities account) were $125,000. Last year’s sales were $500,000. Esther’s expects to grow by 15 percent this year. Assets and accounts payable are expected to grow proportionally to sales. Common stock currently equals $140,000, and retained earnings are $98,000. Esther’s plans to sell $15,000 of new common stock this year. The firm’s profit margin on sales is 6 percent, and 40 percent of earnings will be paid out as dividends. How much new long-term debt financing will Esther’s need this year to finance its expected growth? Esther’s is currently operating at full capacity.
International Inc. is an outdoor furniture company that is planning to considerably grow over the coming years. Gaining very good reputation with its high-quality products , the company is projecting that it can grow at 10% over the coming 4 years and then the growth rate will decrease to 3% thereafter. Its earning per share (EPS) this year was $4 and the company,s dividend pay-out ratio was 30% that is its most recent dividends was $1.2. In order to finance this growth, the company needs to invest in new machinery and working capital. 1) If the company chooses to raise equity, what would be the expected price/share given the projected growth rates and given that the expected return on the company,s equity is 15% (assume the company uses the dividend discount model). 2) If the company instead decides to take an amortizing loan from its bank, the maximum loan value would be $10M which will be just enough to finance the necessary expansion. If the Annualized Percentage Rate (APR) that…

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