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 b $100 1 $27.9 0.79 0.58 0 2 3 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 11.3%.
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 b $100 1 $27.9 0.79 0.58 0 2 3 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 11.3%.
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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(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.
(d) Compute the expected value of the ex-dividend stock price at time 0.
(e) Compute the expected return (over a single-period) on the stock of DTI at time 0 (in %).
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:
Expected earnings per share
Plow-Back Ratio
Book Value per Share
0
$100
1
$27.9
0.79 0.58 0
2 3
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 11.3%.
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