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The information below will be needed to answer all questions. 2009 2010 Sales ($ millions) 1000...

The information below will be needed to answer all questions.

2009

2010

Sales ($ millions)

1000

1112

Cost of Goods Sold ($ millions)

500

556

Other Expenses ($ millions)

100

111

Depreciation ($ millions)

100

100

Interest Expense ($ millions)

50

55

Total Current Assets ($ millions)

600

700

Total Fixed Assets ($ millions)

2200

2500

Accumulated Depreciation ($ millions)

400

This can be determined from the information given

Net Fixed Assets ($ millions)

1800

2000

Total Current Liabilities ($ millions)

450

550

Long-term Liabilities ($ millions)

900

975

Common Stock

500

This can be determined from the information given

  1. Calculate the company’s internal growth rate (IGR) and sustainable growth rate (SGR).
  2. Use the SGR to forecast three years of financial statements. List all assumptions made to create the forecasts. Use long-term debt as the plug.
  3. Use the internal growth rate (IGR) as a permanent growth rate in dividends and estimate the stock price using the single-stage dividend growth model. Use the financial data to find the current dividend per share. There are 3 million shares outstanding. What does the dividend growth model predict the stock price to be? How does the required return break down into its income (DY) and price (CGY) components?

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