At the end of last year, Bantern Corp. reported sales per shareof $20.54. Sales are...

At the end of last year, Bantern Corp. reported sales per share of $20.54. Sales are expected to grow at a rate of 5% per year for the forseeable future. The company’s profit margin has remained steady at 18% for the last several years. Analysts expect that Bantern will have a return on equity of 16% for the forseeable future.
What is Bantern’s retention rate?

What is Bantern’s estimated EPS for the next year?

What is Bantern’s free cash flow to equity for the next year?

Solutions

Expert Solution

a) Growth rate = Retention rate * Return on equity

5% = Retention rate * 16%

Retention rate = 5 / 16

= 0.3125 Answer

b) EPS after one year

EPS = Sales after one year * Profit Margin

= ( 20.54 * 1.05 ) * 18%

= $ 3.8821 Answer

c) Free cash flow to equity

Since lack of information, FCFE shall be equal to EPS.

Thus,

FCFE after one year = $ 3.8821 Answer

jeff jeffy answered 2 years ago

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