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Natasha2012 [34]
3 years ago
11

Suppose that a firm’s recent earnings per share and dividend per share are $2.50 and $1.50, respectively. Both are expected to

grow at 9 percent. However, the firm’s current P/E ratio of 24 seems high for this growth rate. The P/E ratio is expected to fall to 20 within five years.
Compute the dividends over the next five years.

Compute the value of this stock in five years.

Calculate the present value of these cash flows using an 11 percent discount rate.
Business
1 answer:
Elis [28]3 years ago
7 0

Answer:

D0 1.50

D1 1.60

D2 1.78

D3 1.94

D4 2.12

D5 2.31

Price of the stock after 5-year $ 77

PV $ 81.75

Explanation:

Earning per share 2.5

Dividend per share 1.5

grow ratio 9%

P/E ratio 24

within 5 year is expected to fall to 20

We solve for the dividend by multiplying the dividends by the grow rate of 9%

We solve for the earning after 5 years:

Principal \: (1+ r)^{time} = Amount

Principal 2.50

time 5.00

rate 0.09000

2.5 \: (1+ 0.09)^{5} = Amount

Amount 3.85

Then we multiply by 20 to get the value of the stock:

$ 3.85 x 20 = $ 77

We solve the horizon value:

\frac{D_1}{r-g} = PV\\\frac{D_0(1+g)}{r-g} = PV\\

\frac{1.5(1+0.09)}{0.11 - 0.09} = PV\\

PV $ 81.75

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4 0
3 years ago
Sandoval needs to determine its year-end inventory. The warehouse contains 26,000 units, of which 3,600 were damaged by flood an
luda_lava [24]

Answer:

the  number of units that should Sandoval include in its year-end inventory is 29,600 units

Explanation:

The computation of the number of units that should Sandoval include in its year-end inventory is given below:

= Opening units + units purchased + units at consignee location - units damaged

= 26,000 + 2,600 + 4,600 - 3,600

= 29,600

Hence, the  number of units that should Sandoval include in its year-end inventory is 29,600 units

This is the answer but the same is not provided in the given options

6 0
3 years ago
The following information pertains to Nova Co.'s cost-volume-profit relationships:
vitfil [10]

Answer: $150

Explanation:

Breakeven point in units sold = 2,000

Variable expenses per unit = 500

Total fixed expenses = $150,000

The break even in units is calculated as:

= Fixed Cost / Contribution per Unit

Therefore,

1000 = 150000/ Contribution per unit

Contribution per Unit will now be:

= 150000 / 1000

= 150

It should be noted that after the break even point, every unit sold will lead to an increase in the contribution per unit to the net operating income. Therefore, the amount that'll be contributed to net operating income by the 2,001st unit sold is $150.

4 0
3 years ago
Target ROI is 19% Invested Capital is $569,512 Full Cost per unit $1,124 Expected sales volume is 959 units. If the company pric
larisa [96]

Answer:

The amount of profit to be added to the cost of each unit = $112.83

Explanation:

<em>Profit is the difference between the selling price per unit and full cost per unit. To determine the the amount of profit to be added , we will divide the total return on invested capital by the number of units to be produced and sold. This is given below as follows:</em>

Target return = ROI (%) × Invested capital

                     = 19% × 569,512 = 108,207.28

Profit per unit = Total return/Number of units

                   = $108,207.28 /959 units

                   = $112.83 per unit

Selling price per unit = Full cost per unit + profit per unit

                                = 1,124 + 112.83 = 1,237.66  (this is not required anyway)

The amount of profit to be added to the cost of each unit = $112.83

4 0
3 years ago
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