Earnings per common share of ABC Industries for the next year are expected to be $2.25 and to grow 7.5% per year over the next 4 years.

Earnings per common share of ABC Industries for the next year are expected to be $2.25 and to grow 7.5% per year over the next 4 years. At the end of the 5 years, earnings growth rate is expected to fall to 6.25% and continue at that rate for the foreseeable future. ABC’s dividend payout ratio is 40%. If the expected return on ABC's common shares is 18.5%, calculate the current share price. (Round your answer to the nearest cent.)

Current share price $

Expert Solution

Earnings per share next year(E1) = $2.25

ABC’s dividend payout ratio is 40%

Expected dividend in year 1(D1) = E1*40% = $2.25*40%

= $0.9

Assuming ABC’s dividend payout ratio will be constant at 40% in future years

Expected Growth rate of Dividend for next 4 years(g) = 7.5%

Dividend growth rate theerafter forever(g1) = 6.25%

Required rate of Return(Ke) = 18.5%

Calculating the Intrinsic Value of Stock:-

P0 = 0.759+0.689+0.625+0.567+0.514+4.461

P0 = $7.62

So, the Current Value of Stock is $7.62

jeff jeffy answered 2 years ago

Earnings per common share of ABC Industries for the next year are expected to be $2.25...

Earnings per common share of ABC Industries for the next year are expected to be $2.25 and to grow 7.5% per year over the next 4 years. At the end of the 5 years, earnings growth rate is expected to fall to 6.25% and continue at that rate for the foreseeable future. ABC’s dividend payout ratio is 40%. If the expected return on ABC's common shares is 18.5%, calculate the current share price. (Round your answer to the nearest cent.)...

Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its...

Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $9, the market capitalization rate is 9% and next year’s EPS is $14. What is Z-prime’s stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) My guess was: $153.42 and this WAS NOT CORRECT

Company ABC's earnings per share this year are $5. ABC's earnings are expected to grow at...

Company ABC's earnings per share this year are $5. ABC's earnings are expected to grow at rate g every year. The return that investors expect on ABC is 10%. ABC's current (ex-dividend) stock price is $80. ABC's payout ratio is 0.4. (a) Determine rate g. (b) Determine the present value of ABC's growth opportunities.

Company Z's earnings and dividends per share are expected to grow indefinitely by 2% a year.

Company Z's earnings and dividends per share are expected to grow indefinitely by 2% a year. If next year's dividend is $7 and the market capitalization rate is 11%, what is the current stock price?

Earnings Per Share is $5.25, and over the next 5 years they expect a payout ratio...

Earnings Per Share is $5.25, and over the next 5 years they expect a payout ratio of 20% and ROE of 15%. During this high-growth period, beta is estimated at 1.20, with a risk-free rate of 1.0% and a market risk premium of 5%. At the end of the 5-year high growth period, estimate their stable beta will be 1.05, with ROE of 12% and growth of 2.0%. Risk-free rate and market risk premium stay the same. Determine the per-share...

Company Z-prime’s earnings and dividends per share are expected to grow by 3% a year. Its...

Company Z-prime’s earnings and dividends per share are expected to grow by 3% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $9, the market capitalization rate is 11% and next year’s EPS is $16. What is Z-prime’s stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

A company is expected to have earnings of $3.37 per share next year, $4.65 in two...

A company is expected to have earnings of $3.37 per share next year, $4.65 in two years, and $5.23 in three years. The dividend payout ratio is expected to remain at 20% over the next three years. You estimate the risk-free rate to be 4% per year and the expected market risk premium to be 5% per year. In two years, you expect the leading PE ratio to be 11. The beta of the stock is 1.1. What would be...

A company is expected to have earnings of $3.46 per share next year, $4.19 in two...

A company is expected to have earnings of $3.46 per share next year, $4.19 in two years, and $5.58 in three years. The dividend payout ratio is expected to remain at 40% over the next three years. You estimate the risk-free rate to be 5% per year and the expected market risk premium to be 6% per year. In two years, you expect the lagging PE ratio to be 14. The beta of the stock is 0.7. What would be...

Crisp Cookware's common stock is expected to pay a dividend of $2.25 a share at the end of this year (D1 = $2.25)

Crisp Cookware's common stock is expected to pay a dividend of $2.25 a share at the end of this year (D1 = $2.25); its beta is 0.70; the risk-free rate is 3.4%; and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $39 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3...

Corp. forecasts its dividends to be $2.25 per share next year, $2.75 per share in two...

Corp. forecasts its dividends to be $2.25 per share next year, $2.75 per share in two years, and $3.60 per share in three years. After the third year, dividends are anticipated to grow at a constant sustainable rate of 5.0% per year. If cost of capital is 16.0% and its applicable rate is 35.0%, what is the estimated share price for the company's common equity? YOU MUST USE AT LEAST 4 DECIMIL PLACES IN ALL CALCULATIONS AND SHOW ALL WORK...

Question