Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Textbook Question
Chapter 11, Problem 12P
Calculation of gL and EPS
Spencer Supplies’s stock is currently selling for $60 a share. The firm is expected to earn $5.40 per share this year and to pay a year-end dividend of $3.60.
- a. If investors require a 9% return, what rate of growth must be expected for Spencer?
- b. If Spencer reinvests earnings in projects with average returns equal to the stock’s expected
rate of return , then what will be next year’s EPS? [Hint: gL =ROE × Retention ratio.)
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Calculation of gL and EPS
Spencer Supplies' stock is currently selling for $60 a share. The firm is expected to earn $5.40 per share this year and to pay a year-end dividend of $1.80.
If investors require a 9% return, what rate of growth must be expected for Spencer? Round your answer to the nearest whole number.
%
If Spencer reinvests earnings in projects with average returns equal to the stock's expected rate of return, then what will be next year's EPS? (Hint: gL = ROE × Retention ratio.) Do not round intermediate calculations. Round your answer to the nearest cent.
$
Spencer Supplies’ stock is currently selling for $60 a share. The firm is expected toearn $5.40 per share this year and to pay a year-end dividend of $3.60.a. If investors require a 9% return, what rate of growth must be expected forSpencer?
If Spencer reinvests earnings in projects with average returns equal to thestock’s expected rate of return, what will be next year’s EPS? [Hint: g ROE(Retention ratio).
The FI Corporation's dividends per share are expected to grow indefinitely by 6% per year.
a. If this year's year-end dividend is $8.00 and the market capitalization rate is 10% per year, what must the current stock price be
according to the DDM?
Current stock price
b. If the expected earnings per share are $16.00, what is the implied value of the ROE on future investment opportunities? (Round your
answer to 2 decimal places.)
Value of ROE
c. How much is the market paying per share for growth opportunities (i.e., for an ROE on future investments that exceeds the market
capitalization rate)? (Round your answer to 2 decimal places.)
Amount
%
per share
Chapter 11 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 11 - Define each of the following terms:
Weighted...Ch. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Distinguish between beta (i.e., market) risk,...Ch. 11 - Suppose a firm estimates its overall cost of...Ch. 11 - 11-1 After-Tax Cost of Debt
Calculate the...Ch. 11 - Prob. 2PCh. 11 - Cost of Preferred Stock
Duggins Veterinary...Ch. 11 - Prob. 4PCh. 11 - Prob. 5P
Ch. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Bond Yield and After-Tax Cost of Debt A companys...Ch. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Calculation of gL and EPS Spencer Suppliess stock...Ch. 11 - The Cost of Equity and Flotation Costs
Messman...Ch. 11 - Prob. 14PCh. 11 - WACC Estimation
On January 1, the total market...Ch. 11 - Prob. 16PCh. 11 - During the last few years, Jana Industries has...Ch. 11 - What is the market interest rate on Jana’s debt,...Ch. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Prob. 5MCCh. 11 - Prob. 6MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - What procedures can be used to estimate the...Ch. 11 - Prob. 12MCCh. 11 - Prob. 13MCCh. 11 - Prob. 14MCCh. 11 - What four common mistakes in estimating the WACC...
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