2 eBook B Hint Business has been good for Keystone Control Systems, as indicated by the ten-year growth in earnings per share. The earnings have grown from $1.00 to $3.84. a. Determine the compound annual rate of growth In earnings (n-10). Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Compound annual rate of growth b. Based on the growth rate determined in part a, project earnings for next year (E₁). Note: Do not round Intermediate calculations. Round your answer to 2 decimal places. E₁ c. Assume the dividend payout ratio is 50 percent. Compute D₁. Note: Do not round Intermediate calculations. Round your answer to 2 decimal places. D₁ Ke % d. The current price of the stock is $18. Using the growth rate (g) from part a and (D₁) from part c, compute Ke Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. % e. If the flotation cost is $3.00, compute the cost of new common stock (K₂) using growth rate (g) from part a and dividend (D₁). from part c. Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. %

2 eBook B Hint Business has been good for Keystone Control Systems, as indicated by the ten-year growth in earnings per share. The earnings have grown from $1.00 to $3.84. a. Determine the compound annual rate of growth In earnings (n-10). Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Compound annual rate of growth b. Based on the growth rate determined in part a, project earnings for next year (E₁). Note: Do not round Intermediate calculations. Round your answer to 2 decimal places. E₁ c. Assume the dividend payout ratio is 50 percent. Compute D₁. Note: Do not round Intermediate calculations. Round your answer to 2 decimal places. D₁ Ke % d. The current price of the stock is $18. Using the growth rate (g) from part a and (D₁) from part c, compute Ke Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. % e. If the flotation cost is $3.00, compute the cost of new common stock (K₂) using growth rate (g) from part a and dividend (D₁). from part c. Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Business has been good for Keystone Control Systems, as indicated by the thirteen-year growth in earnings per share. The earnings have grown from $1.00 to $2.41. a. Determine the compound annual rate of growth in earnings (n = 13). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) b. Based on the growth rate determined in part a, project earnings for next year (E1). (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Assume the dividend payout ratio is 45 percent. Compute D1. (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. The current price of the stock is $20. Using the growth rate (g) from part a and (D1) from part c, compute Ke. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) e. If the flotation cost is $1.50, compute the cost of new common stock (Kn) using growth rate (g) from part a…
Tinsley, Incorporated, wishes to maintain a growth rate of 13 percent per year and a debt-equity ratio of .3. The profit margin is 5 percent, and total asset turnover is constant at 1.2. a. What is the dividend payout ratio? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the maximum sustainable growth rate for this company? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Dividend payout ratio b. Sustainable growth rate % %
Suppose that a firm's recent earnings per share and dividend per share are $3.10 and $2.10, respectively. Both are expected to grow 7 percent. However, the firm's current P/E ratio of 30 seems high for this growth rate. The P/E ratio is expected to fall to 26 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places Years First year Second year Third year Fourth year Fifth year Dividends Compute the value of this stock in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price
Jasmine Manufacturing wishes to maintain a sustainable growth rate of 9.75 percent a year, a debt-equity ratio of 48, and a dividend payout ratio of 28.5 percent. The ratio of total assets to sales is constant at 1.27. What profit margin must the firm achieve in order to meet its growth rate goal? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Profit margin % 4
Brockman Corporation's earnings per share were $3.50 last year, and its growth rate during the prior 5 years was 11.4% per year. If that growth rate were maintained, how many years would it take for Brockman's EPS to triple? Select the correct answer. a. 5.38 b. 7.78 c. 10.18 d. 2.98 e. 12.58
You have found the following historical information for the Daniela Company: Stock price EPS Year 1 Year 2 Year 3 Year 4 $49.24 2.59 $67.43 $61.19 $67.07 2.65 2.82 2.81 Earnings are expected to grow at 8 percent for the next year. What is the PE ratio for each year? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Year 1 Year 2 Year 3 Year 4 What is the average PE ratio over this period? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Average PE Using the company's historical average PE as a benchmark, what is the target stock price in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Target price
Last year, Lakesha’s Lounge Furniture Corporation had an ROA of 5.8 percent and a dividend payout ratio of 34 percent. What is the internal growth rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Suppose that a firm's recent earnings per share and dividend per share are $2.55 and $1.40, respectively. Both are expected to grow at 11 percent. However, the firm's current P/E ratio of 15 seems high for this growth rate. The P/E ratio is expected to fall to 11 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.) Years First year Second year Third year Fourth year Fifth year Dividends
Ramble On Co. wishes to maintain a growth rate of 10.4 percent per year, a debt-equity ratio of 1.0, and a dividend payout ratio of 15 percent. The ratio of total assets to sales is constant at .82. What profit margin must the firm achieve? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Profit margin % 8.26
Suppose that a firm's recent earnings per share and dividend per share are $3.05 and $2.40, respectively. Both are expected to grow at 8 percent. However, the firm's current P/E ratio of 25 seems high for this growth rate. The P/E ratio is expected to fall to 21 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.) Years First year Second year Third year Fourth year Fifth year Compute the value of this stock price in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price Dividends Calculate the present value of these cash flows using a 10 percent discount rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value
Suppose that a firm's recent earnings per share and dividend per share are $3.05 and $2.40, respectively. Both are expected to grow at 8 percent. However, the firm's current P/E ratio of 25 seems high for this growth rate. The P/E ratio is expected to fall to 21 within five years. Compute the dividends over the next five years. (Do not round Intermediate calculations. Round your answers to 3 decimal places.) Fall Answer is complete and correct. Years First year Second year Third year Fourth year Fifth year Stock price $ S Present value $ $ S Dividends Compute the value of this stock price in five years. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) 2.592 2.799 3.023 3.265 3.526 Answer is complete and correct. S 94.08 Calculate the present value of these cash flows using a 10 percent discount rate. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) x Answer is not complete. h so far. It does not Indicate completion.
Suppose that a firm’s recent earnings per share and dividend per share are $2.60 and $1.60, respectively. Both are expected to grow at 10 percent. However, the firm’s current P/E ratio of 25 seems high for this growth rate. The P/E ratio is expected to fall to 21 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.) Compute the value of this stock in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Calculate the present value of these cash flows using a 12 percent discount rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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