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Company Q’s current return on equity (ROE) is 13%. The firm pays out 45 percent of its earnings as cash dividends. (payout ratio = .45). Current book value per share is $58. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next four years. After that, competition forces ROE down to 11.0% and the payout ratio increases to .80. The cost of capital is 11.0%. a. What are Q’s EPS and dividends in years 1, 2, 3, 4, and 5? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year EPS Dividends 1 $ 8.08 $ 3.64 2 $ 8.66 $ 3.90 3 $ 9.28 $ 4.18 4 $ 9.94 $ 4.47 5 $ $ b. What is Q’s stock worth per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock worth per share $
The risk-free rate of return is 3%. Calculate the expected rate of return for this stock.
Which celebrity would you use to endorse Diet Pepsi in attempts to reach a ‘different’ target group? Who might you use for regular Pepsi? Diet Coke? Coke Classic? Sprite? Explain and justify your choice for each.
El Paso Company is planning to get a machine that will cost $14,000 and is expected to last for 7 years. The company uses straight-line depreciation. The tax rate of El Paso is 31% and the proper discount rate in this case is 12%. Find the minimum pr..
Two projects being considered are mutually exclusive and have the following projected cash flows.
Calculate the standard deviation of returns for each stock and for the portfolio and explain what each figure mean.
The initial investment is $22,000 Using the discounted payback period method when will the organization break even?
What are the pros and cons of issuing new stock to repurchase outstanding debt? in a capital structure?
What is the IRR of this investment?
Assume you are working on a 12/31 year-end audit. It is now March 31 and the 12/31 accounts receivable aging shows a large receivable that was outstanding on 12/31 for 120 days. Further, the entity's receivables are typically collected in less than 4..
Calculate the equivalent annual cash flows the project must earn to equal the aftertax salvage value.
Calculate the firm’s cash conversion cycle given annual sales are $900,000 and cost of goods represent 80% of sales. Assume a 365-day year.
Why is it important to evaluate capital budgeting projects on the basis of incremental cash flows? Distinguish between three basic cash flow components of a capital project 1) Initial investment 2) Operating cash inflows 3) Terminal cash flows
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