Digital Timber International (DTI) is a developer of distributed data storage technologies. The profitability of DTI and its investment policy are summarized in the following table: Expected earnings per share Plow-Back Ratio Book Value per Share $26.3 b.83 0.56 o $100 Assume that without new investments, expected earnings of DTI would remain at their time-1 level in perpetuity. All investments are expected to generate a constant level of incremental earnings per year in perpetuity for each $1 of investment. For the time-1 investment, the cash flow is $0.2 per $1 invested, and for the time-2 investment, it is $0.15. For an investment made at time t, incremental cash flows are generated starting in year t + 1. The plow-back ratio will remain equal to 0 after year 3. The appropriate discount rate for all future cash flows of DTI is 11.4%. (a) Compute the expected book value per share at time 1. (b) Compute the expected earnings per share of DTI at time 2. (C) Compute the expected value of the ex-dividend stock price at time 2.
Digital Timber International (DTI) is a developer of distributed data storage technologies. The profitability of DTI and its investment policy are summarized in the following table: Expected earnings per share Plow-Back Ratio Book Value per Share $26.3 b.83 0.56 o $100 Assume that without new investments, expected earnings of DTI would remain at their time-1 level in perpetuity. All investments are expected to generate a constant level of incremental earnings per year in perpetuity for each $1 of investment. For the time-1 investment, the cash flow is $0.2 per $1 invested, and for the time-2 investment, it is $0.15. For an investment made at time t, incremental cash flows are generated starting in year t + 1. The plow-back ratio will remain equal to 0 after year 3. The appropriate discount rate for all future cash flows of DTI is 11.4%. (a) Compute the expected book value per share at time 1. (b) Compute the expected earnings per share of DTI at time 2. (C) Compute the expected value of the ex-dividend stock price at time 2.
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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Transcribed Image Text:Digital Timber International (DTI) is a developer of distributed data storage technologies. The profitability of DTI and its
investment policy are summarized in the following table:
3
Expected earnings per share
Plow-Back Ratio
$26.3
0.83
0.56 0
Book Value per Share
$100
Assume that without new investments, expected earnings of DTI would remain at their time-1 level in perpetuity. All
investments are expected to generate a constant level of incremental earnings per year in perpetuity for each $1 of
investment. For the time-1 investment, the cash flow is $0.2 per $1 invested, and for the time-2 investment, it is $0.15. For
an investment made at time t, incremental cash flows are generated starting in year t + 1. The plow-back ratio will remain
equal to 0 after year 3. The appropriate discount rate for all future cash flows of DTI is 11.4%.
(a) Compute the expected book value per share at time 1.
(b) Compute the expected earnings per share of DTI at time 2.
(c) Compute the expected value of the ex-dividend stock price at time 2.
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