At the beginning of 2012 investors had invested $25,000 of common equity in Grant Corp. and expect to earn a return of 11% per year. In addition, investors expect Grant Corp. to pay out 100% of income in dividends each year. Forecasts of Grant's net income are as follows: 2012 - $3,500 2013 $3,200 2014 - $2,900 2015 and beyond - $2,750 Using this information, what is Grant's residual income valuation at the beginning of 2012?

At the beginning of 2012 investors had invested $25,000 of common equity in Grant Corp. and expect to earn a return of 11% per year. In addition, investors expect Grant Corp. to pay out 100% of income in dividends each year. Forecasts of Grant's net income are as follows: 2012 - $3,500 2013 $3,200 2014 - $2,900 2015 and beyond - $2,750 Using this information, what is Grant's residual income valuation at the beginning of 2012?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter11: Investment Planning

Section: Chapter Questions

Problem 7FPE: Using the Value Line Investment Survey report in Exhibit 11.5, find the following information for...

See similar textbooks

Similar questions

Use your own words to answer the following questions: Write the formula for the P/E ratio and what it measures? Should you invest in a company with high P/E or low P/E? A company has the following items for the fiscal year 2020: Revenue = 10 million Net income = 4 million The company has 2 million shares of stock Stock price per share = $70 Calculate the company’s earnings per share and P/E ratio
From the financial statements of Company A for the year 2022, we read the following information: Book value of equity = $100 millions, Net income = $20 millions. Distributed Cash dividend = $12 millions. There are 10 millions common shares of the company in circulation. Answer the following questions, assuming the required return of 10%. What would be its expected value at the end of 5 years, namely P5? a. 26.32 b. 15.62 c. 17.63 d . 10.65
You are interested in determining the intrinsic value of Hoffman Inc. Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely. Lastly, your estimate of the required return on the firm’s equity is 12%. Hoffman’s recently published annual report shows the following financial relationships: Assets = 1.4 x Equity Current Assets = 1.7 x Current Liabilities Sales = 1.5 x Assets Net Income = 8% x Sales Dividends = 30% x Net Income Earnings per share (Basic) = $0.80 per share Required: Use the multi-period DDM to estimate the intrinsic value of the company’s stock now, at the beginning of year 1.
You are interested in determining the intrinsic value of Hoffman Inc. Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely. Lastly, your estimate of the required return on the firm’s equity is 12%. Hoffman’s recently published annual report shows the following financial relationships: Assets = 1.4 x Equity Current Assets = 1.7 x Current Liabilities Sales = 1.5 x Assets Net Income = 8% x Sales Dividends = 30% x Net Income Earnings per share (Basic) = $0.80 per share Required: If all of your expectations remain as shown, except that, on the last day of year 1, the required return decreases by 1%. What would be your holding period return for the year?
Over the past 6 years, Elk County Telephone has paid the dividends shown in the following table, The firm's dividend per share in 2023is expected to be $6.76. a.If you can earn 15% on similar-risk investments, what is the most you would be willing to pay per share in 2022, just after the $6.62 dividend? b. If you can earn only 12% on similar-risk investments, what is the most you would be willing to pay per share? c. Compare your findings in parts a and b, what is the impact of changing risk on share value?
Using spreadsheet financial functions, calculate the following: Number of periodsPetcom’s 2021 earnings per share (EPS) were $2, and its growth rate during the prior 5 years was 9.0% per year. If that growth rate were maintained, how long would it take forthe company’s EPS to double?
The following are earnings and dividend forecasts made at the end of 2020 for the IBM Corporation with a $40 BV per common share at that time. In 2021, EPS will be $7 and DPS $1. In 2022, EPS will be $8 and DPS $1.50. In 2023, EPS will be $9 and DPS $2. The firm has a required equity return of 15% per year. Calculate the book value per share for the company for each year from 2021 to 2023, accordingly.
An investor estimates that next year’s sales for Dursley’s Hotels, Inc. should amount to about $100 million. The company has five million shares outstanding, generates a net profit margin of about 10%, and has a payout ratio of 50%. All figures are expected to hold for next year. Given this information, compute the following. .Estimated net earnings for next year Next year’s dividends per share The expected price of the stock (assuming the P/E ratio is 24.5 times earnings)
At the end of the year 2020 Brown Bear Corporation paid dividends $3.39 per share. The company projects the following annual growth rates in dividends: Year Growth Rate 2021 13% 2022 13% 2023 13% 2024 11% 2025 6% 2026 4% From year 2027 onward growth in dividends is expected to remain constant at 3% per year. The required rate of return for this stock is 12.16%. Calculate the economic value of the stock now (end of the Year 2020).
At the end of the year 2020 Brown Bear Corporation paid dividends $3.58 per share. The company projects the following annual growth rates in dividends: Year Growth Rate 2021 13% 2022 13% 2023 13% 2024 11% 2025 8% 2026 4% From year 2027 onward growth in dividends is expected to remain constant at 3% per year. The required rate of return for this stock is 12.06%. Calculate the economic value of the stock now (end of the Year 2020). Your Answer:
For the next fiscal year, you forecast net income of $48,300 and ending assets of $503,500. Your firm's payout ratio is 10.8%. Your beginning stockholders' equity is $299,400, and your beginning total liabilities are $129,100. Your non-debt liabilities such as accounts payable are forecasted to increase by $10,100. Assume your beginning debt is $109,100. What amount of equity and what amount of debt would you need to issue to cover the net new financing in order to keep your debt-equity ratio constant? The amount of debt to issue will be $ (Round to the nearest dollar.)
VI. Solve the following problems. 1. QRS Corporation has declared dividend for January 2019 of P20 per share and expected to grow at a rate of 8% the following year and 7% on the succeeding year. Stockholders of QRS Corporation expect a return of investment of 12%. Determine the value of a stock of QRS Corporation.