Assume that American Eagle Outfitters (AEO) will pay $0.18/share dividend next year. The dividend is expected to growat a 15.5 percent rate. At the current stock price of $13.72/share, what is the return shareholders are expecting? Group ofanswer choices 16.81% 15.50% 17.08 % 17.32% None of these are correct

As per Dividend Discount Model- Current Share price = Dividend in year 1/(Required rate-Growth rate)…

Answered: Assume that American Eagle Outfitters…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 2P

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Assume that IWT has completed its IPO and has a $112.5 million capital budget planned for the coming year. You have determined that its present capital structure (80% equity and 20% debt) is optimal, and its net income is forecasted at $140 million. Use the residual distribution approach to determine IWT’s total dollar distribution. Assume for now that the distribution is in the form of a dividend. Suppose IWT has 100 million shares of stock outstanding. What is the forecasted dividend payout ratio? What is the forecasted dividend per share? What would happen to the payout ratio and DPS if net income were forecasted to decrease to $90 million? To increase to $160 million? In general terms, how would a change in investment opportunities affect the payout ratio under the residual distribution policy? What are the advantages and disadvantages of the residual policy? (Hint: Don’t neglect signaling and clientele effects.)
CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?
What is the current per-share value of JRM Corporation to an investor who requires a 0.17 annual rate of return, if JRM's current per-share dividend is $6 and is expected to remain at grow at 0.09 for the foreseeable future? what is the price of the stock
Click to see additional instructions Feral has a current stock price of $32 share, is expected to pay a dividend of $1.20 in one year, and its expected price right after paying that dividend is $35. a. What is its dividend yield? % b. What is its capital gains rate? c. What is the total realized return on this stock? %
A preferred stock is expected to pay a constant quarterly dividend of $1.75 per quarter into the future. The required rate of return, Rs, on the preferred stock is 12.0 percent. What is the fair value (or price) of this stock? Group of answer choices a. $18.65 b. None of the above c. $37.04 d. $24.36 e. $58.33
Assume that a firm can issue preferred stock that has a $70 par value and pays a 15.0% annual dividend each year. The firm's investment bankers believe that investors will be willing to pay $84.00 per share and that flotation costs will be equal to $8.45 per share. Given this information, determine the difference between the investor's required rate of return, and the firm's cost of preferred stock. O 1.969%. O 1.398% O 1.683% O 2.541% O 2.224%
Assuming a required rate of return of 15%, what is current value of XYZ Companys’s stock given its expected dividends of 2 per share at the end of Year 1, 3 per share at the end of Year 2, and an anticipated selling price of 32 per share at the end of Year 2? 20 17 00 18 None of the above
A share of preferred stock pays a quarterly dividend of $2.1. If the price of this preferred stock is currently $96, what is the nominal annual rate of return? Group of answer choices 8.25% 7.75% 8.75% 9.25% 7.25%
Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $52.50 per share. What is its effective annual (not nominal) rate of return? Select the correct answer. a. 7.30% b. 7.84% c. 6.76% d. 7.57% e. 7.03%
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You are considering the purchase of preferred shares issued by Somerset Corp. These pay an annual dividend of $3.15 and are currently selling for $26.90. What is the implied return on this investment? 11.71% 8.54% 10.92% 12.16%

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