EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 9, Problem 23QP
Finding the Required Return Juggernaut Satellite Corporation earned $23 million for the fiscal year ending yesterday. The firm also paid out 30 percent of its earnings as dividends yesterday. The firm will continue to pay out 30 percent of its earnings as annual, end-of-year dividends. The remaining 70 percent of earnings is retained by the company for use in projects. The company bas 2 million shares of common stock outstanding. The current stock price is $97. The historical
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Mercury Satellite Corporation earned $20 million for the fiscal year ending yesterday.
The firm's policy is to pay out 30 percent of its earnings as dividends. The remaining 70
percent of earnings is retained by the company for use in projects. The company has 2
million shares of common stock outstanding. The current stock price is $90. The
historical return on equity (ROE) of 15 percent is expected to continue in the future. What
is the required rate of return on the stock? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
QUESTION 1.
a) Newdeal Inc. follows a policy of distributing
45% of its profits and investing the rest in the
operations of the company. The average
profitability of its assets is 20 % and the
current year dividend per face value of 1$ is
30 %. Compute the intrinsic value of a stock of
this company for an investor whose minimum
required rate of return is 25 %.
b) Compute the value of this stock one year
later under the same assumptions.
Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share.
a) Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy.
b) Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow
c)
Blue Valley Ltd, a subsidiary of Green Forest Ltd will go under liquidation procedures due to the recent global economic recession in one-year time. The company just announced today it will be paying an annual dividend totally $7.5 million this year and $12.5 million one year from now as a…
Chapter 9 Solutions
EBK CORPORATE FINANCE
Ch. 9 - Stock Valuation Why does the value of a share of...Ch. 9 - Stock Valuation A substantial percentage of the...Ch. 9 - Dividend Policy Referring to the previous...Ch. 9 - Prob. 4CQCh. 9 - Common versus Preferred Stock Suppose a company...Ch. 9 - Dividend Growth Model Based on the dividend growth...Ch. 9 - Growth Rate In the context of the dividend growth...Ch. 9 - Price-Earnings Ratio What are the three factors...Ch. 9 - Prob. 9CQCh. 9 - Prob. 10CQ
Ch. 9 - Stock Values The Starr Co. just paid a dividend of...Ch. 9 - Stock Values The next dividend payment by ECY,...Ch. 9 - Stock Values For the company in the previous...Ch. 9 - Stock Values Shiller Corporation will pay a 2.75...Ch. 9 - Stock Valuation Siblings, Inc., is expected to...Ch. 9 - Stock Valuation Suppose you know that a companys...Ch. 9 - Stock Valuation Gruber Corp. pays a constant 9...Ch. 9 - Valuing Preferred Stock Ayden, Inc., has an issue...Ch. 9 - Growth Rate The newspaper reported last week that...Ch. 9 - Stock Valuation and PE The Spring Flower Co. has...Ch. 9 - Stock Valuation Universal Laser, Inc., just paid a...Ch. 9 - Nonconstant Growth Metallica Bearings, Inc., is a...Ch. 9 - Nonconstant Dividends Bucksnort, Inc., has an odd...Ch. 9 - Nonconstant Dividends Lohn Corporation is expected...Ch. 9 - Differential Growth Phillips Co. is growing...Ch. 9 - Differential Growth Synovec Corp. is experiencing...Ch. 9 - Negative Growth Antiques R Us is a mature...Ch. 9 - Finding the Dividend Mau Corporation stock...Ch. 9 - Valuing Preferred Stock Fifth National Bank just...Ch. 9 - Using Stock Quotes You have found the following...Ch. 9 - Nonconstant Growth and Quarterly Dividends...Ch. 9 - Finding the Dividend Briley, Inc., is expected to...Ch. 9 - Finding the Required Return Juggernaut Satellite...Ch. 9 - Dividend Growth Four years ago, Bling Diamond,...Ch. 9 - Prob. 25QPCh. 9 - Stock Valuation and PE Ramsay Corp. currently has...Ch. 9 - Stock Valuation and EV FFDP Corp. has yearly sales...Ch. 9 - Stock Valuation and Cash Flows Fincher...Ch. 9 - Capital Gains versos Income Consider four...Ch. 9 - Stock Valuation Most corporations pay quarterly...Ch. 9 - Nonconstant Growth Storico Co. just paid a...Ch. 9 - Nonconstant Growth This ones a little harder....Ch. 9 - Growth Opportunities The Stambaugh Corporation...Ch. 9 - Growth Opportunities Burklin, Inc., has earnings...Ch. 9 - Prob. 1MCCh. 9 - Prob. 2MCCh. 9 - Prob. 3MCCh. 9 - Assume the companys growth rate declines to the...Ch. 9 - Assume the companys growth rate slows to the...Ch. 9 - Prob. 6MC
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.Similar questions
- Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share. Required: Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy. Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow morningarrow_forwardSolarpower Systems earned $20 per share at the beginning of the year and paid out $10 in dividends to shareholders (so, D0=$10) and retained $10 to invest in new projects with an expected return on equity of 21 percent. In the future, Solarpower expects to retain the same dividend payout ratio, expects to earn a return of 21 percent on its equity invested in new projects, and will not be changing the number of shares of common stock outstanding. a. Calculate the future growth rate for Solarpower's earnings. b. If the investor's required rate of return for Solarpower's stock is 14 percent, what would be the price of Solarpower's common stock? c. What would happen to the price of Solarpower's common stock if it raised its dividends to $14 and then continued with that same dividend payout ratio permanently? Should Solarpower make this change? (Assume that the investor's required rate of return remains at 14 percent.) d. What would happened to the price of…arrow_forwardA transportation company needs to determine the cost of capital of its shares common. The company's stock is currently selling for $ 57.50. The company expects pay a dividend of $ 3.40 at the end of the year (2020). The following table shows the dividends of the last 5 years. Year Dividend2019 $ 3.102018 2.922017 2.602016 2.302015 2.12After administrative costs, the company expects to earn $ 52 per share from a new issue.a) Determine the growth rate of dividends from 2015 to 2019. (g =?)arrow_forward
- The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share. Please answer: a) How much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is…arrow_forwardYou are analyzing a large stable company. For the year ending 12/31/05 the company reported earnings of $58,900 and book value at the end of 2005 was $371,700. You expect earnings to grow at 5% a year in perpetuity, and the dividend payout ratio of 70% to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000 shares outstanding. 1. What is your estimate of price per share using the dividend discount model at 12/31/05? a) $21.65 b) 20.62 c) $24.74 d) $23.56arrow_forwardIt was reported last week that Blue Bell Enterprises earned $18.5 million this year. The report also stated that the firm’s return on equity is 11 percent. The firm retains 80 percent of its earnings. What will next year's earnings be? Round to the nearest whole dollar.arrow_forward
- Net profit of Lily Fashion House Ltd in the current year is $2,575, 000. The company is planning to launch a project that will requires an investment of $745 000 next year. Today the company’s stock has market value of $22/share. Lily Fashion House has the current capital structure of 60% in equity and 40% in debt. How much dividend Lily Fashion House can pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies?arrow_forwardAssume that your company is an all-equity firm with 250,000 shares outstanding. The company's EBIT is $2,500,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year, so its earnings per share are equal to its dividends per share and this is currently $6.00 per share. The company's tax rate is 40 percent, its current cost of stock, Ks, is 8 percent, and its current stock price is $75 per share. Now assume that the company is considering issuing $3.75 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated yield to maturity of 5 percent or interest of $187,500. The risk-free rate in the economy is 4 percent, and the market risk premium is 5 percent. The company's beta is currently 0.8, but its investment bankers estimate that the company's beta would rise to 0.9 if it proceeds with the recapitalization. Assume that the shares are repurchased at the equilibrium price that…arrow_forwardA company just issued $140000 of perpetual 9% debt and used the proceeds to repurchase stock. The company expects to generate 121000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 10% and the tax rate is 40%. Use FTE to calculate the value of the company's equity. Your Answer: Answerarrow_forward
- You are analyzing a large stable company. For the year ending 12/31/05 the company reported earnings of $58,900 and book value at the end of 2005 was $371,700. You expect earnings to grow at 5% a year in perpetuity, and the dividend payout ratio of 70% to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000 shares outstanding. what is the estimate of price per share using the dividend discount model at 12/31/05?arrow_forwardThe newspaper reported last week that SunRise Enterprises earned $34.19 million this year. The report also stated that the firm’s return on equity is 13 percent. The firm retains 85 percent of its earnings. What will next year's earnings be?arrow_forwardThe Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250 000. The company is planning to launch a project that will requires an investment of $175 000 next year. Currently the share of Giant machinery is $25/share. Required: 1.How much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies? 2. If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%? 3. Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License