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Problem 10-01 West Wind, Inc. has 5,200,000 shares of common stock outstanding with a market value of $70 per share. Net income for the coming year is expected to be $7,000,000. What impact will a two-for-one stock split have on the earnings per share and on the price of the stock? Round the earnings per share to the nearest cent and the prices of the stock to the nearest dollar. EPS before the split: $ EPS after the split: $ Price of the stock before the split: $ Price of the stock after the split: $ per share per share

Problem 10-01 West Wind, Inc. has 5,200,000 shares of common stock outstanding with a market value of $70 per share. Net income for the coming year is expected to be $7,000,000. What impact will a two-for-one stock split have on the earnings per share and on the price of the stock? Round the earnings per share to the nearest cent and the prices of the stock to the nearest dollar. EPS before the split: $ EPS after the split: $ Price of the stock before the split: $ Price of the stock after the split: $ per share per share

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 14PROB
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Problem 10-01 West Wind, Inc. has 5,200,000 shares of common stock outstanding with a market value of $70 per share. Net income for the coming year is expected to be $7,000,000. What impact will a two-for-one stock split have on the earnings per share and on the price of the stock? Round the earnings per share to the nearest cent and the prices of the stock to the nearest dollar. EPS before the split: $ EPS after the split: $ Price of the stock before the split: $ Price of the stock after the split: $ per share per share
Transcribed Image Text:Problem 10-01 West Wind, Inc. has 5,200,000 shares of common stock outstanding with a market value of $70 per share. Net income for the coming year is expected to be $7,000,000. What impact will a two-for-one stock split have on the earnings per share and on the price of the stock? Round the earnings per share to the nearest cent and the prices of the stock to the nearest dollar. EPS before the split: $ EPS after the split: $ Price of the stock before the split: $ Price of the stock after the split: $ per share per share
Problem 11-03 An investor with a required return of 12 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm Current earnings Current dividend Expected annual growth rate in dividends and earnings Current market price A B C $2.30 $3.50 $7.30 $1.10 $3.20 $7.40 -1% 6% b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % 1% $24 $ 32 $ 32 $ 64 a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ c. If the appropriate P/E ratio is 11, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 6, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $
Transcribed Image Text:Problem 11-03 An investor with a required return of 12 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: Firm Current earnings Current dividend Expected annual growth rate in dividends and earnings Current market price A B C $2.30 $3.50 $7.30 $1.10 $3.20 $7.40 -1% 6% b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. % 1% $24 $ 32 $ 32 $ 64 a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ c. If the appropriate P/E ratio is 11, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 6, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $
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