The writer is very fast, professional and responded to the review request fast also. Thank you.
It’s early morning on January 1st, 2008 and Mr Duby is thinking about investing in ABC stocks. ABC reported earnings per share (EPS) of $2 as of December 31, 2007 but paid no dividends. Earnings are expected to grow at 16% per year for the following 4 years. ABC will start paying dividends for the first time on December 31, 2011, distributing 40% of its earnings to shareholders. Earnings growth will slow to 7.5% per year for the next 5 years (i.e. from January 1, 2012 through December 31, 2016). Starting December 31, 2016 ABC will pay out 70% of its earnings in dividends and earnings growth will stabilize at 2% per year forever. The required rate of return on ABC stock is 10%.
a. How much should Mr. Pitt pay for a share of ABC stock given the above earnings and dividend forecast?
b. What would be the value of the stock today if Mr Duby could convince ABC directors to change the company’s future dividend policy to pay out 100% of its December 31, 2016 earnings in dividends (i.e. the retention ratio would become 0%) and maintain this dividend policy forever? In other words, starting on December 31, 2016, should the company pay out all of its earnings in dividends instead of pursuing their growth strategy?
Show more
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more