Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Textbook Question
Chapter 11, Problem 18P
Business has been good for Keystone
a. Determine the compound annual rate of growth in earnings
b. Based on the growth rate determined in part a, project earnings for next year
c. Assume the dividend pay out ratio is 40 percent. Compute
d. The current price of the stock is
e. If the flotation cost is
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Justin Cement Company has had the following pattern of earnings per share over the last five years:
Earnings
per Share
$ 11.00
11.55
12.13
12.55
13.42
Year
20x1
20X2
20X3
20X4
20X5
The earnings per share have grown at a constant rate (on a rounded basis) and will continue to do so in the future. Dividends
represent 40 percent of earnings.
a. Project earnings and dividends for the next year (20X6).
Note: Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your
answers to 2 decimal places.
Earnings
Dividend
20X6
b. If the required rate of return (Ke) is 13 percent, what is the anticipated stock price (Po) at the beginning of 20X6?
Note: Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your
answer to 2 decimal places.
Anticipated stock price
Business has been good for Keystone Control Systems, as indicated by the thirteen-year growth in earnings per share. The earnings have grown from $1.00 to $2.41.
a. Determine the compound annual rate of growth in earnings (n = 13). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
b. Based on the growth rate determined in part a, project earnings for next year (E1). (Do not round intermediate calculations. Round your answer to 2 decimal places.)
c. Assume the dividend payout ratio is 45 percent. Compute D1. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
d. The current price of the stock is $20. Using the growth rate (g) from part a and (D1) from part c, compute Ke. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
e. If the flotation cost is $1.50, compute the cost of new common stock (Kn) using growth rate (g) from part a…
Sisyphus Corp. has projected that their performance for the next five years results to the following:
YEAR
Revenue
Cash Operating Expenses
1
50
30
2
55.00
33.00
3
60.50
36.30
4
66.55
39.93
5
73.21
43.92
Terminal value was assumed based on the growth rate of the cash flows. The annual Capital investment requirement is at P2 million. The income Tax rate is at 30%. The required rate of return for their business is 14%.
Requirement:
How much is the Free Cash Flow for years 1-5?
How much is the Discounted Net Cash Flows to the Firm for years 1-5?
Chapter 11 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 11 - Why do we use the overall cost of capital for...Ch. 11 - How does the cost of a source of capital relate to...Ch. 11 - Prob. 3DQCh. 11 - Why is the cost of debt less than the cost of...Ch. 11 - What are the two sources of equity (ownership)...Ch. 11 - Explain why retained earnings have an associated...Ch. 11 - Why is the cost of retained earnings the...Ch. 11 - Why is the cost of issuing new common stock Kn...Ch. 11 - How are the weights determined to arrive at the...Ch. 11 - Explain the traditional, U-shaped approach to the...
Ch. 11 - Prob. 11DQCh. 11 - What effect would inflation have on a company’s...Ch. 11 - What is the concept of marginal cost of capital?...Ch. 11 - In March 2010, Hertz Pain Relievers bought a...Ch. 11 - Speedy Delivery Systems can buy a piece of...Ch. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Calculate the aftertax cost of debt under each of...Ch. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Airborne Airlines Inc. has a $1,000 par value bond...Ch. 11 - Russell Container Corporation has a $1,000 par...Ch. 11 - Prob. 11PCh. 11 - KeySpan Corp. is planning to issue debt that will...Ch. 11 - Medco Corporation can sell preferred stock for $90...Ch. 11 - Wallace Container Company issued $100 par value...Ch. 11 - Prob. 15PCh. 11 - Murray Motor Company wants you to calculate its...Ch. 11 - Compute KeandKn under the following...Ch. 11 - Business has been good for Keystone Control...Ch. 11 - Prob. 19PCh. 11 - Evans Technology has the following capital...Ch. 11 - Sauer Milk Inc. wants to determine the minimum...Ch. 11 - Given the following information, calculate the...Ch. 11 - Prob. 23PCh. 11 - Brook's Window Shields Inc. is trying to calculate...Ch. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Delta Corporation has the following capital...Ch. 11 - The Nolan Corporation finds it is necessary to...Ch. 11 - The McGee Corporation finds it is necessary to...Ch. 11 - Eaton Electronic Company’s treasurer uses both...Ch. 11 - Compute the $ change in “Total Assets� over...Ch. 11 - Do the same computation for “Stockholders’...Ch. 11 - Do the same computation for “Long-Term Debt.�Ch. 11 - Prob. 5WE
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