Company Ts current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = .25). Current book value per share is $35. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and the company increases the payout ratio to 60%. The company does not plan to issue or retire shares. The cost of capital is 9.5%. a.What is stock T worth?
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Company Ts current
cash dividends (payout ratio = .25). Current book value per share is $35. The company has
5 million shares outstanding.
Assume that ROE and payout ratio stay constant for the next four years. After that,
competition forces ROE down to 10% and the company increases the payout ratio to 60%.
The company does not plan to issue or retire shares. The cost of capital is 9.5%.
a.What is stock T worth?
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- Shirley and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. After that time, the company plans on paying a constant $1 a share dividend indefinitely. Given a required return of 14% p.a., what is the value of this stock?The Red Bud Company pays a constant dividend of $3.20 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8.8 percent?Company Ts current return on equity (ROE) is 16%. It pays out one-quarter of earnings as cash dividends (payout ratio = .25). Current book value per share is $35. The company has 5 million shares outstanding. Assume that ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 10% and the company increases the payout ratio to 60%. The company does not plan to issue or retire shares The cost of capital is 9 5% What is stock T worth? How much of stock T’s value is attributable to growth opportunities?
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