Question

In: Finance

ABC Inc. just reported earnings of $35 million. It has adiscount rate of 8% on...

ABC Inc. just reported earnings of $35 million. It has a discount rate of 8% on its stock. Assume its return
on new investment is 12%. The company has 1.5 million shares outstanding. If earnings are expected to
have a perpetual growth rate of 6%, calculate ABC Inc.’s EPS1.
A. $24.73
B. $23.33
C. $25.20
D. $26.13
E. None of the options

Solutions

Expert Solution

Current EPS=Total earnings/Shares outstanding

=$35 million/1.5 million shares

=$23.3333(Approx)

Hence EPS1=Current EPS*(1+Growth rate)

=$23.3333*1.06

=$24.73(Approx)

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Burklin, Inc., has earnings of $18.5 million and is projected to grow at a constant rate...
Burklin, Inc., has earnings of $18.5 million and is projected to grow at a constant rate of 5 percent forever because of the benefits gained from the learning curve. Currently, all earnings are paid out as dividends. The company plans to launch a new project two years from now that would be completely internally funded and require 25 percent of the earnings that year. The project would start generating revenues one year after the launch of the project and the...
Apple Inc. just reported an EPS of $3.30 on revenues of $260,174 million. The company has...
Apple Inc. just reported an EPS of $3.30 on revenues of $260,174 million. The company has 17,100 million shares outstanding. Total assets are $338,516 million, current liabilities equal $105,718 million, and long-term debt is $142,310 million. Net fixed assets are worth $175,697 million. Given this information, which one of the following statements is correct? Apple’s net working capital is $67,101 million. Apple’s total asset turnover is 1.77. Apple’s debt-equity ratio is 2.74. Apple’s current ratio is 3.54.
Company ABC Inc has just sold an asset for $2.3 million for the purpose of self-financing...
Company ABC Inc has just sold an asset for $2.3 million for the purpose of self-financing a capital expansion program that may include purchase of a piece of manufacturing equipment for $1.6 million. The company’s tax rate is 25%, its required rate of return is 11%, the estimated salvage or recovery value of the equipment at the end of 3 years is $450,000. Given the high-tech nature of its industry, the conservative approach is to use a depreciable life of...
The FCF of company ABC is growing at a constant rate 8%. FCF0 = $25 million....
The FCF of company ABC is growing at a constant rate 8%. FCF0 = $25 million. The weighted average cost of capital (WACC) for this company is 18%. This company has a short-term investment of $7 million, debt $12 million and preferred stock of $1 million. The number of shares outstanding is 10 million. How much is the stock price according to the FCFF valuation model? 2. Company XYZ has the following FCF: Year 1 D1 = $ 0.5 Year...
ABC, Inc. just paid an annual dividend (D0) of $1 per share on earnings of $2....
ABC, Inc. just paid an annual dividend (D0) of $1 per share on earnings of $2. You expect the firm’s dividends to grow at 20% over the next two years based on its expansion plans. After that you expect dividends to grow at the industry average of 7% per year. The riskfree rate is 3%, the market risk premium is 6%, and its beta is 1.2. Using CAPM, what is the discount rate used to calculate the intrinsic value? (in...
ABC, Inc. just paid an annual dividend (D0) of $2 per share on earnings of $3....
ABC, Inc. just paid an annual dividend (D0) of $2 per share on earnings of $3. You expect the firm’s dividends to grow at 15% over the next two years based on its expansion plans. After that you expect dividends to grow at the industry average of 8% per year. The riskfree rate is 3%, the market risk premium is 5%, and its beta is 1.1, so the discount rate is 8.5%. What is the present value of the first...
ABC has accumulated $23 million in assets, operating income of $1.75 million. The tax rate is...
ABC has accumulated $23 million in assets, operating income of $1.75 million. The tax rate is 35%. It finances 25%, 50% and 75% of its assets with debt at costs of 9%,10& and 12% respectively. Discuss your results. a. Determine the ROE under three models. b. Which capital structure is best and why? c. What if EBIT increases by 10%, which capital structure is best?
Company ABC has just announced earnings of $2 per share. Based on the last five years,...
Company ABC has just announced earnings of $2 per share. Based on the last five years, earnings have grown at a rate of 20% per annum and the company expects this to continue for the next five years, after which it expects earnings to remain constant forever. The company has a policy of paying out 30% of its earnings as dividends. ABC stock has a beta of 1.2. The yield to maturity on 10-year government bonds is 2% and market...
Company ABC has just announced earnings of $2 per share. Based on the last five years,...
Company ABC has just announced earnings of $2 per share. Based on the last five years, earnings have grown at a rate of 20% per annum and the company expects this to continue for the next five years, after which it expects earnings to remain constant forever. The company has a policy of paying out 30% of its earnings as dividends. ABC stock has a beta of 1.2. The yield to maturity on 10-year government bonds is 2% and market...
Company ABC has just announced earnings of $2 per share. Based on the last five years,...
Company ABC has just announced earnings of $2 per share. Based on the last five years, earnings have grown at a rate of 20% per annum and the company expects this to continue for the next five years, after which it expects earnings to remain constant forever. The company has a policy of paying out 30% of its earnings as dividends. ABC stock has a beta of 1.2. The yield to maturity on 10-year government bonds is 2% and market...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT