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Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 6 percent over the next four years. The required rate of return is 20 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the anticipated value of the dividends for the next four years. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) b. Calculate the present value of each of the anticipated dividends at a discount rate of 20 percent. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) c. Compute the price of the stock at the end of the fourth year (P4). (Do not round intermediate calculations. Round your final answer to 2 decimal places.) d. Calculate the present value of the year 4 stock price at a discount rate of 20 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) e. Compute the current value of the stock. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) f. Use the formula given below to show that it will provide approximately the same answer as part e. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) P0 = D1 Ke − g g. If current EPS were equal to $5.70 and the P/E ratio is 1.2 times higher than the industry average of 5, what would the stock price be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) h. By what dollar amount is the stock price in part g different from the stock price in part f? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) i. With regard to the stock price in part f, indicate which direction it would move if: HintsReferenceseBook & Resources Hint #1 Check my workPrevious attempt ©2017 McGraw-Hill Education. All rights reserved. Section F G H I
The POP Corporation had sales of $80 million in 2015. Costs other than depreciation and amortization were 60 percent of sales, and depreciation and amortization expenses were $19.6 million. It had $140 million debt with 3.5 % annual interest. Compute..
Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,900, and the company expects to sell 1,540 per year. The company currently sells 2,040 units of its existing model per year..
Project H requires an initial investment of $100.,000 and produces annual cash flows of $50,000, $40,000, and $30,000. The projects are mutually exclusive. The company accepts projects with payback periods of 3 years or less.
The risk-free rate is 8 percent, and the expected market risk premium is 8.3 percent. Should USR undertake the project?
The next dividend payment by Halestorm, Inc., will be $1.80 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. The stock currently sells for $35 per share. What is the dividend yield? What is the expected capital..
Tracy receives payments of $X at the end of each year for n years. The present value of her annuity is 493. Gary receives payments on $3X at the end of each year for 2n years. The present value of his annuity is $2,748. Both present values of calcula..
What are the ethical issues?
At the end of the most recent fiscal year, Nike had shareholder's equity of $12B and Visa had shareholder's equity of $30B. During the current fiscal year, analysts' expect Nike to have net income of $3.24B and Visa to have net income of $6.58B. Assu..
An employee can name a charity as the sole beneficiary of group term life insurance and avoid any income tax on the economic benefit for coverage over what amount?
Acme Services’ CFO is considering whether to take on a new project that has average risk. She has collected the following information: • The company has outstanding bonds that mature in 26 years. What is Acme’s cost of preferred equity?
Jack and Jill have just had their first child. If college is expected to cost $170,000 per year in 18 years, how much should the couple begin depositing annually at the end of each year to accumulate enough funds to pay the first? year's tuition at t..
Hurricane Corp. recently purchased corporate bonds in the secondary market with a par value of $11 million, a coupon rate of 12 percent (with annual coupon payments), and four years until maturity. what is the expected market value of the bonds in tw..
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