What is the expected annual growth rate in earnings

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Steve & Mark, a large producer of Nitrogen gas, reported earnings per share of $1.50 in 2021 and paid a dividend of $0.42. The firm also reported a total net income of $30 million, book value of net debt of $7.6 million and book value of equity of $160 million. The firm is expected to maintain these fundamentals from 2022 to 2026. At end of 2026, it is expected that the firm will become a stable growth firm with growth rate of 4%. It is also expected that the firm will start earning 12.5% of ROCE beginning year 2027 on par with the industry peers.

What is the expected annual growth rate in earnings for the period 2022 - 2026?
What is the expected payout ratio after 2026?
What is the expected price of equity (Terminal value in a 2-stage dividend discount model) at the end of 2026? Assume that the cost of capital for equity for the firm in the permanent growth stage is 10%
What is the PV of the terminal value? Assume that the cost of capital for equity is 10.1% now.

Reference no: EM133264995

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