Digital Timber International (DTI) is a developer of distributed data storage technologies. The profitability of DTI and its investment policy are summarized in the following table: Expected earnings per share Plow-Back Ratio Book Value per Share $26.3 b.83 0.56 o $100 Assume that without new investments, expected earnings of DTI would remain at their time-1 level in perpetuity. All investments are expected to generate a constant level of incremental earnings per year in perpetuity for each $1 of investment. For the time-1 investment, the cash flow is $0.2 per $1 invested, and for the time-2 investment, it is $0.15. For an investment made at time t, incremental cash flows are generated starting in year t + 1. The plow-back ratio will remain equal to 0 after year 3. The appropriate discount rate for all future cash flows of DTI is 11.4%. (a) Compute the expected book value per share at time 1. (b) Compute the expected earnings per share of DTI at time 2. (C) Compute the expected value of the ex-dividend stock price at time 2.

Digital Timber International (DTI) is a developer of distributed data storage technologies. The profitability of DTI and its investment policy are summarized in the following table: Expected earnings per share Plow-Back Ratio Book Value per Share $26.3 b.83 0.56 o $100 Assume that without new investments, expected earnings of DTI would remain at their time-1 level in perpetuity. All investments are expected to generate a constant level of incremental earnings per year in perpetuity for each $1 of investment. For the time-1 investment, the cash flow is $0.2 per $1 invested, and for the time-2 investment, it is $0.15. For an investment made at time t, incremental cash flows are generated starting in year t + 1. The plow-back ratio will remain equal to 0 after year 3. The appropriate discount rate for all future cash flows of DTI is 11.4%. (a) Compute the expected book value per share at time 1. (b) Compute the expected earnings per share of DTI at time 2. (C) Compute the expected value of the ex-dividend stock price at time 2.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 21P

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