What is the price per share of rite bite stock

Reference no: EM131508077

Question: Rite Bite Enterprises sells toothpicks. Gross revenues last year were $3 million, and total costs were $1.5 million. Rite Bite has 1 million shares of common stock outstanding. Gross revenues and costs are expected to grow at 5 percent per year. Rite Bite pays no income taxes. All earnings are paid out as dividends.

a. If the appropriate discount rate is 15 percent and all cash flows are received at year's end, what is the price per share of Rite Bite stock?

b. Rite Bite has decided to produce toothbrushes. The project requires an immediate outlay of $15 million. In one year, another outlay of $5 million will be needed. The year after that, earnings will increase by $6 million. That profit level will be maintained in perpetuity. What effect will undertaking this project have on the price per share of the stock?

Reference no: EM131508077

Questions Cloud

Calculate the price of the call option : Use Black Scholes option pricing model to calculate the price of the call option.

About the capital asset pricing model : what is the expected rate of return for a stock with a beta of 0.58 under the Capital Asset Pricing Model (CAPM)?

Price-weighted index-what is the divisor on your index : You construct a price-weighted index of 31 stocks. At the end of the day, your index value is 5,647.94. What is the divisor on your index?

Find the cost capital of bad boys : Bad Boys, Inc. is evaluating its cost of capital. Under consultation, Bad Boys, Inc. expects to issue new debt at par with a coupon rate of 8%.

What is the price per share of rite bite stock : Rite Bite Enterprises sells toothpicks. Gross revenues last year were $3 million, and total costs were $1.5 million. Rite Bite has 1 million shares of common.

How low does the borrowing cost need to drop : How low does the borrowing cost need to drop to justify refunding with a new bond issue?

Friends elected under the cumulative voting rule : What percentage of stock is needed to have one of her friends elected under the cumulative voting rule?

Which option is better assuming they are of equal risk : Which option is better, assuming they are of equal risk?

What is the adjective phrase : I am just trying to pass a test and don't understand the following sentences: what is the adjective phrase: In place of junk food, our cafeteria now has a salad

User Account

All Pages