Reference no: EM133204728

Colgate-Palmolive Company has just paid an annual dividend of $1.55. Analysts are predicting dividends to grow by $0.16 per year over the next five years. After? then, Colgate's earnings are expected to grow 6.5% per? year, and its dividend payout rate will remain constant. If? Colgate's equity cost of capital is 8.5% per? year, what price does the? dividend-discount model predict Colgate stock should sell for?today? The price per share is $__?

Suppose Acap Corporation will pay a dividend of $2.71 per share at the end of this? year, and $3.02 per share next year. You expect? Acap's stock price to be $52.32 in two years. If? Acap's equity cost of capital is 9.7%?:

a. What price would you be willing to pay for a share of Acap stock? today, if you planned to hold the stock for two? years?

b. Suppose instead you plan to hold the stock for one year. What price would you expect to be able to sell a share of Acap stock for in one? year?

c. Given your answer in part (b?), what price would you be willing to pay for a share of Acap stock? today, if you planned to hold the stock for one? year? How does this compare to your answer in part (a?)?

Note?: It is best not to round intermediate calculations? - make sure to carry at least four decimal places in intermediate calculations.

Halliford Corporation expects to have earnings this coming year of $3.31 per share. Halliford plans to retain all its earnings for the next two years. For the subsequent two? years, the firm will retain 48% of its earnings. It will then retain 22% of its earnings from that point onward. Each? year, retained earnings will be invested in new projects with an expected return of 18.02% per year. Any earnings that are not retained will be paid out as dividends. Assume? Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If? Halliford's equity cost of capital is 8.1%?, what price would you estimate for Halliford? stock? Note: Remenber that growth rate is computed? as: retention rate × rate of return.

Benchmark Metrics Inc.? (BMI), an? all-equity financed? firm, reported EPS of $5.84 in 2008. Despite the economic? downturn, BMI is confident regarding its current investment opportunities. But due to the financial? crisis, BMI does not wish to fund these investments externally. The Board has therefore decided to suspend its stock repurchase plan and cut its dividend to $1.33 per share? (vs. almost $2 per share in 2007) and retain these funds instead. The firm has just paid the 2008? dividend, and BMI plans to keep its dividend at $1.33 per share in 2009 as well. In subsequent? years, it expects its growth opportunities to?slow, and it will still be able to fund its growth internally with a target 41% dividend payout? ratio, and reinitiating its stock repurchase plan for a total payout rate of 65%. (All dividends and repurchases occur at the end of each? year.) Suppose? BMI's existing operations will continue to generate the current level of earnings per share in the future. Assume further that the return on new investment is 15%?, and that reinvestments will account for all future earnings growth? (if any).? Finally, assume? BMI's equity cost of capital is 10%.

a. Estimate? BMI's EPS in 2009 and 2010? (before any share? repurchases).

b. What is the value of a share of BMI at the start of 2009? (end of? 2008)?

Make sure to round all intermediate calculations to at least four decimal places.?