Surf & Turf Hotels is a mature business, although it pays no
cash dividends. Next year’s earnings are forecasted at $88 million.
There are 10 million outstanding shares. The company has
traditionally paid out 50% of earnings by repurchases and
reinvested the remaining earnings. With reinvestment, the company
has generated steady growth averaging 5% per year. Assume the cost
of equity is 14%.
a. Calculate Surf & Turf ’s current stock
price, using the constant-growth DCF model. (Hint: Take
the easy route and estimate overall market capitalization.)
(Do not round intermediate calculations.
Round your answer to 2 decimal places.)
Current Stock Price:_______
b. Now Surf & Turf's CFO announces a switch
from repurchases to a regular cash dividend. Next year’s dividend
will be $4.40 per share. The CFO reassures investors that the
company will continue to pay out 50% of earnings and reinvest 50%.
All future payouts will come as dividends, however. What would be
Surf & Turf ’s stock price? (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
Stock Price:________
Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year’s...
Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $82 million. There are 10 million outstanding shares. The company has traditionally paid out 50% of earnings by repurchases and reinvested the remaining earnings. With reinvestment, the company has generated steady growth averaging 5% per year. Assume the cost of equity is 10%. a. Calculate Surf & Turf 's current stock price, using the constant-growth DCF model. (Hint. Take the...
Metatrend's stock will generate earnings of $3 per share this year. The discount rate for the stock is 15%, and the rate of return on reinvested earnings also is 15% a. Find both the growth rate of dividends and the price of the stock if the company reinvests the following fraction of its earnings in the form: (0) 0%, (m) 40%, (i) 60% (Do not round intermediate calculations. Enter the growth rates as a whole percent.) 0% Reinvestment of Earnings...
Mexican Motors’ market cap is 360 billion pesos. Next year’s free cash flow is 9.9 billion pesos. Security analysts are forecasting that free cash flow will grow by 8.9% per year for the next five years. a. Assume that the 8.9% growth rate is expected to continue forever. What rate of return are investors expecting? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of return % b-1. Mexican Motors has generally...
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $19.50, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 15% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm’s ROE on new investments is expected to fall to 10%, and...
An investor in Amman, Jordan, estimates that next year’s sales for Amman Intercontinental Hotels, Inc. would amount to about 150 million Jordanian dinar. The company has 10 million shares outstanding, generates a net profit margin of about 15%, and has a payout ratio of 40%. All figures are expected to hold for next year. Given this information, compute the following. A. Estimated net earnings for next year b. Next year’s dividends per share c. The expected price of the stock...
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $14.50, all of which was reinvested in the company. The firm's expected ROE for the next five years is 18% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 13%, and...
Security valuation: equity: Next year, a company expects net income of $44 million. It pays 50% of its earnings out in dividends and has a cost of equity capital of 11%. a. If the company's NI has a 7% growth rate, what is the estimated value of your company? b. What is its re-investment rate (i.e. internal rate of return on earnings retained and reinvested)? Now suppose instead that the company's re-investment rate (i.e. internal rate of return) on all...
No-Growth Industries pays out all of its earnings as dividends. It will pay its next $3 per share dividend in a year. The discount rate is 6%. a. What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What would the P/E ratio be if the discount rate were 5%? (Round your answer to 2 decimal places.)
1) An analyst gathered the following financial information about a firm: Estimated (next year’s) EPS $10 per share Dividend payout ratio 40% Required rate of return 12% Expected long-term growth rate of dividends 5% What is the analysts’ estimate of intrinsic value? Show work. 2) An analyst has made the following estimates for a stock: dividends over the next year $.60 long-term growth rate 13% Intrinsic value $24 per share The current price of the shares is $22. Assuming the...
S17-15 Dividends versus Reinvestment [LO2] National Business Machine Co. (NBM) has $4 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets. The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 2.5 percent or in 4.3 percent preferred stock. IRS regulations...