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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 risk premium is 10%.
(a) Calculate the current value per share.
(b) If the stock is currently trading in the market at $10 per share, comment on whether any profits can be made. What form of market efficiency prevails if this occurs? Examine the other two (2) forms of market efficiency and what the observation on the stock price here implies in terms of market efficiency.
(c) The company plans to issue a 7-year bond in the near future to finance expansion into neighbouring countries. It expects interest rates to fall in 3 years’ time. State and describe two (2) possible types of bonds the company could issue. Analyse how the company can determine the pricing for its bond issue?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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...
FIN303: Financial Management Company ABC has just announced earnings of $2 per share. Based on the...
FIN303: Financial Management
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...
2A. Firm ABC paid an annual dividend of $2.00 per share last year. Management just announced...
2A. Firm ABC paid an annual dividend of $2.00 per share last year. Management just announced that future dividends will increase by 2 percent annually. What is the amount of the expected dividend in year 5? 2B. Firm ABC is going to pay an annual dividend of $2.00 per share next year. Management just announced that future dividends will increase by 2 percent annually. What is the amount of the expected dividend in year 5? 2C. Firm ABC is going to pay...
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
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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
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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
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Path to the Mountain Inc. just announced earnings per share of $6 for the current quarter...
Path to the Mountain Inc. just announced earnings per share of
$6 for the current quarter (which ended today). Path to the
Mountain has just paid out 20% of these earnings as a dividend and
reinvested the rest in new projects earning a return of 38% per
year. Path to the Mountain will continue to pay quarterly dividends
under these policies and investment returns until two years from
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Hot Wings, Inc. has just paid a dividend of $2 per share and has announced that...
Hot Wings, Inc. has just paid a dividend of $2 per share and has
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Over the last 10? years, a firm has had the earnings per share shown in the...
Over the last 10? years, a firm has had the earnings per share
shown in the following? table:
.
2015
$1.50
2010
$3.55
2014
$3.01
2009
$1.76
2013
$3.73
2008
$1.76
2012
$2.93
2007
-$1.31
2011
$4.81
2006
$0.56
a.??If the? firm's dividend policy were based
on a constant payout ratio of? 40% for all years with positive
earnings and? 0% otherwise, what would be the annual dividend
for
2015??
b.??If the firm had a dividend payout of? $1.00
per?...
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