EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 7, Problem 29P
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To determine: Expected value of stock at the beginning of year 5.
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Konawalski’s Kustom Erdapfel Chips, Inc., is the maker of gourmet German-style potato chips. The company began business three years ago in rural North Carolina and grew quickly as the product became known. Konawalski is now poised for national growth. Some analysts call the firm the next Krispy Kreme. The company pays a dividend of $0.10 per share. Earnings per share are currently $0.50, and analysts expect both earnings and dividends to grow at 20 percent per year for the next five years. The stock price is expected to increase in value by 70 percent over the next three years. If you believe that investors require a 20 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski?
Konawalski’s Kustom Erdapfel Chips, Inc., is the maker of gourmet German-style potato chips. The company began business three years ago in rural North Carolina and grew quickly as the product became known. Konawalski is now poised for national growth. Some analysts call the firm the next Krispy Kreme. The company pays a dividend of $0.05 per share. Earnings per share are currently $0.60, and analysts expect both earnings and dividends to grow at 17 percent per year for the next 5 years. The stock price is expected to increase in value by 60 percent over the next 3 years. If you believe that investors require a 17 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.
Njabini Chips Company., is the maker of gourmet German-style potato chips. Thecompany began business three years ago in North Coast and grew quickly as the productbecame known. Njabini is now poised for national growth. Some analysts call the firm thenext Kenchic . The company pays a dividend of Sh.1.00 per share. Earnings per share arecurrently Sh.5.00 and analysts expect both earnings and dividends to grow at 20 percent peryear for the next 5 years. The stock price is expected to increase in value by 70 percent overthe next 3 years.Required;If you believe that investors require a 20 percent rate of return on a stock of this risk, whatprice would you recommend as the IPO price for Njabini?
Chapter 7 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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