Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Jarett & Sons' common stock currently trades at $26.00 a share. It is expected to pay an annual dividend of $1.50 a share at the end of the year (D1 = $1.50), and the constant growth rate is 5% a year. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. % If the company issued new stock, it would incur a 13% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places. %arrow_forwardMeadow Dew Corporation currently has an EPS of $3.80, and the benchmark PE for the company is 37. Earnings are expected to grow at 10 percent per year. a. What is your estimate of the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the target stock price in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assuming the company pays no dividends, what is the implied return on the company’s stock over the next year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forwardHighGrowth Company has a stock price of $20. The firm will pay a dividend next year of $1.03, and its dividend is expected to grow at a rate of 3.6% per year thereafter. What is your estimate of HighGrowth's cost of equity capital? The required return (cost of capital) of levered equity is __ % ? (Round to one decimal place.)arrow_forward
- 2. Cost of Equity The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 4% per year in the future. Shelby's common stock sells for $27 per share, its last dividend was $2.50, and the company will pay a dividend of $2.60 at the end of the current year. (a) Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places. % (b) If the firm's beta is 1.3, the risk-free rate is 10%, and the expected return on the market is 12%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places. % (c) If the firm's bonds earn a return of 9%, then what would be your estimate of rs using the own-bond- yield-plus-judgmental-risk-premium approach? (Hint: Use the mid-point of the risk premium range.) Round your answer to two decimal places. % (d) On the basis of the results of parts a-c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach…arrow_forward'S A company will pay a $2 per share dividend in 1 year. The dividend in 2 years will be $4 per share, and it is expected that dividends will grow at 5% per year thereafter. The expected rate of return on the stock is 14%. a. What is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current price b. What is the expected price of the stock in a year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected pricearrow_forwardJarett & Sons' common stock currently trades at $21.00 a share. It is expected to pay an annual dividend of $1.00 a share at the end of the year (D1 = $1.00), and the constant growth rate is 7% a year. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. __% If the company issued new stock, it would incur a 13% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places. __ %arrow_forward
- A3) see picturearrow_forwardSidman Products's common stock currently sells for $42 a share. The firm is expected to earn $3.36 per share this year and to pay a year-end dividend of $2.40, and it finances only with common equity. a. If investors require an 8% return, what is the expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % b. If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? (Hint: g = (1-Payout ratio)ROE). Do not round intermediate calculations. Round your answer to the nearest cent. per sharearrow_forwardMeadow Dew Corporation currently has an EPS of $4.00, and the benchmark PE for the company is 39. Earnings are expected to grow at 5 percent per year. a. What is your estimate of the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the target stock price in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assuming the company pays no dividends, what is the implied return on the company's stock over the next year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Current stock price b. Target stock price c. Implied return of stock %arrow_forward
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