Halliford Corporation expects to have earnings this coming year of $3.26 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 46% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 20.12% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.9%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate × rate of return. The price per share is $_________________ (Round to the nearest cent.)
Halliford Corporation expects to have earnings this coming year of $3.26 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 46% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 20.12% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.9%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate × rate of return. The price per share is $_________________ (Round to the nearest cent.)
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 15P
Related questions
Question
Halliford Corporation expects to have earnings this coming year of
retained earnings will be invested in new projects with an expected return of
$3.26
per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain
46%
of its earnings. It will then retain
20%
of its earnings from that point onward. Each year, 20.12%
per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is
9.9%,
what price would you estimate for Halliford stock?Note: Remenber that growth rate is computed as: retention rate
of return.
×
rateThe price per share is
$_________________
(Round to the nearest cent.)Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College