Question

Can you help me with 11+12

15-11 Jansken Co. has an ROE = .11 and a beta of 1.20. It plans to maintain indefinitely its traditional payout ratio of 0.35. This year's earnings were $2.50 per share. This year's dividend was just paid. The consensus estimate of the coming year's market return is 10%, and T-bills currently offer 5% return. Find the price at which Jansken should sell using the DDM. 15-12 The Porras Corporation has sales of $30 million, total assets of $44 million, stockholders equity of $21.5 million, book value of $15.46 per share, and a net income of $6,230,000. What is the EPS of the company?

Answer 1

first let us know the growth rate => ROE * (1-pay out ratio)

=>0.11*(1-0.35)

=>0.0715.

now let us know the required return :

risk free rate + beta *(market return - risk free rate)

here,

risk free rate = 5%.

market return =10%.

beta =1.20.

required rate = 5% +1.20 *(10%-5%)

=>5% +6%

=>11%.

this year dividend = $2.50*0.35

=>0.875.

price = dividend *(1+ growth rate) / (required return - growth rate)

=>$0.835 *(1+0.0715) / (0.11-0.0715)

=>$23.24.

15-12.

EPS = net income / number of shares.

here,

net income =$6,230,000

number of shares =$21,500,000/15.46 per share

=>1,390,685.64.

EPS = 6,230,000/ 1,390,685.64

=>$4.48.