Question

CH7 1. Laurel Enterprises expects earnings next year of $3.84 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 1 1%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5% per year If its next dividend is due in one year, what do you estimate the firm's current stock price to be? 2, Laurel Enterprises expects earnings next year of$4.00 per share and has a 40% retention rate, which it plans to keep constant. Its equity cost of capital is 10%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 4.0% per year If its next dividend is due in one year, what do you estimate the firm's current stock price to be? 3. Cooperton Mining just announced it will cut its dividend from $4.00 to $2.50 per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a 3.0% rate, and its share price was $50.00. With the planned expansion, Cooperton's dividends are expected to grow at a 5.0% rate. what share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment? 4. Shatin Intl. has 9.69.6 million shares, an equity cost of capital of 12.7% and is expected to pay a total dividend of $20.5 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $9.9 million of stock each year as well. What is your estimate of Shatin's stock price after this announcement?