Question

Trend-Line Inc. has been growing at a rate of 6% per year and is expected to continue to do so indefinitely. The next dividend is expected to be $5 per share. a. If the market expects a 10% rate of return on Trend-Line, at what price must it be selling? (Do not round intermediate calculations.) Current selling price b. If Trend-Line's earnings per share will be $8 next year, what part of its value is due to assets in place? (Do not round intermediate calculations.) es Trend-Line's value c. If Trend-Line's earnings per share will be $8 next year, what part of its value is due to growth opportunities? (Do not round intermediate calculations.) Trend-Line's value 8 of 9 Next> < Prev

Answer 1

Given,

Expected dividend = $ 5 per share

Growth rate (g) = 6% or 0.06

Rate of return (r) = 10% or 0.10

Earnings per share = $ 8

Solution :-

I current Selling Price - Expected dividend - r-g $5 0.10 - 0.06 $5 – $125 0.04 (b) Trend-line's Value - Earnings per share $8 0.10 - $80 Trend - line's Valere (PVGO) - Current selling – Trend-line's value e Price due to its assets $125 - 80 - $45 Note & Value PUGO stands for present of growth opportunities.