PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 4, Problem 19PS
Two-stage DCF model Company Q’s current
- a. What are Q’s EPS and dividends next year? How will EPS and dividends grow in years 2, 3, 4, 5, and subsequent years?
- b. What is Q’s stock worth per share? How does that value depend on the payout ratio and growth rate after year 4?
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Company Q’s current return on equity (ROE) is 16%. It pays out 60 percent of earnings as cash dividends (payout ratio = 0.60).
Current book value per share is $62. Book value per share will grow as Q reinvests earnings.
Assume that the ROE and payout ratio stay constant for the next three years. After that, competition forces ROE down to 12.5% and the payout ratio increases to 0.70.
The cost of capital is 11%.
What is Q’s stock worth per share?
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Assume that the ROE and payout ratio stay constant for the next two years. After that,
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Question: What is Q's stock worth per share?
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Company Q's current return on equity (ROE) is 14%. It pays out 50 percent of earnings as cash dividends (payout ratio = 0.50). Current
book value per share is $65. Book value per share will grow as Q reinvests earnings.
Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11.5% and the
payout ratio increases to 0.70. The cost of capital is 11.5%.
a. What are Q's EPS and dividends in years 1, 2, 3, 4, and 5? (Do not round intermediate calculations. Round your answers to 2
decimal places.)
Year
1
2
3
4
5
EPS
Dividends
b. What is Q's stock worth per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Stock worth per share
Chapter 4 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 4 - Stock markets True or false? a. The bid price is...Ch. 4 - Stock quotes a. I would like to sell 1000 shares...Ch. 4 - Stock quotes Here is a small part of the order...Ch. 4 - Stock quotes Go to finance.yahoo.com and get...Ch. 4 - Valuation by comparables Look up P/E and P/B...Ch. 4 - Dividend discount model True or false? a. All...Ch. 4 - Dividend discount model Respond briefly to the...Ch. 4 - Dividend discount model Company X is expected to...Ch. 4 - Dividend discount model Company Y does not plow...Ch. 4 - Constant-growth DCF model Company Zs earnings and...
Ch. 4 - Prob. 11PSCh. 4 - Constant-growth DCF model Pharmecology just paid...Ch. 4 - Prob. 13PSCh. 4 - Cost of equity capital Under what conditions does...Ch. 4 - Cost of equity capital Each of the following...Ch. 4 - Two-stage DCF model Company Z-prime is like Z in...Ch. 4 - Two-stage DCF model Consider the following three...Ch. 4 - Two-stage DCF model Company Qs current return on...Ch. 4 - Two-stage DCF model Compost Science Inc. (CSI) is...Ch. 4 - Growth opportunities If company Z (see Problem 10)...Ch. 4 - Growth opportunities Alpha Corps earnings and...Ch. 4 - Prob. 24PSCh. 4 - Prob. 25PSCh. 4 - Prob. 26PSCh. 4 - Horizon value Suppose the horizon date is set at a...Ch. 4 - Valuing a business Permian Partners (PP) produces...Ch. 4 - Valuing a business Construct a new version of...Ch. 4 - Valuing a business Mexican Motors market cap is...Ch. 4 - Valuing a business Phoenix Corp. faltered in the...Ch. 4 - Constant-growth DCF formula The constant-growth...Ch. 4 - DCF valuation Portfolio managers are frequently...Ch. 4 - Valuing a business Construct a new version of...
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