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Question: XYZ Inc. has expected earnings over the next year of $2/share (E1 = 2). The company is expected to maintain an earnings retention rate of 40%, i.e., 60% of earnings are expected to be paid out as dividends every year. The company has a beta of 1.5, the risk-free rate is 4%, and the market risk premium is also 4%. The growth rate of earnings is 5%.
a) According to the CAPM, what is the discount rate of the stock?
b) What should be the value of the stock according to the Gordon Growth Model?
c) What is the expected holding period return over the next year?
d) How much of the expected HPR in (c) is due to capital gains (price appreciation) and how much is attributable to dividend yield?
e) What ROE justifies the growth rate?
f) What is the present value of growth opportunities for this stock?
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Determine the amounts of any cash inflows or outflows related to the common stock and dividend accounts in 2017.
Mack: "Hi, I'm Mack. My best friend Peter Charles (aka: PC) and I have been best friends for 10 years. Both of us have an extensive background in computers. For years, our friends and family have encouraged us to go into business for ourselves as ..
Determine and Compute diluted earnings per share for 2020, assuming the same facts as above, except that $960,000 of 6% convertible preferred stock
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