Chapter 12, Problem 3FPE

The price of Landscapes Inc. is now $85. The company pays no dividends. Troy Compton expects the price four years from now to be $125 a share. Should Troy buy Landscapes if he wants a 15 percent rate of return? Explain.

You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8 percent per year.  The dividend payout ratio is 60 percent and the required rate of return on Laduma shares is 15 percent.  If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation?  If transaction costs are R2,50 per share, would you follow his advice? required: D(1)                =  D (3)               =   P(T)                =   P(0)                =   Buy/sell:    Net Procceed:    Buy/sell:

You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8 percent per year.  The dividend payout ratio is 60 percent and the required rate of return on Laduma shares is 15 percent.  If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation?  If transaction costs are R2,50 per share, would you follow his advice?   16   D(1)                =         D (3)               =          P(T)                =          P(0)                =          Buy/sell:          Net Procceed:          Buy/sell: