Next year Dillon Mechanical Inc.'s EPS is expected to be $2. The firm is not expected to
Question:
Next year Dillon Mechanical Inc.'s EPS is expected to be $2. The firm is not expected to pay any dividends for the next four years. In year 5, a dividend of $1 is expected and subsequent dividends are expected to grow at 5 percent per year. Another firm’s (Sterling Inc.'s) next-year EPS is expected to be $5. Sterling has just paid a dividend of $5 (cheques were mailed out today). Its dividends are expected to grow at 1 percent per year. Assume that the cost of capital for both firms is 15 percent.
a. What should be the current share price of Dillon Mechanical Inc.?
b. What should be the current share price of Sterling Inc.?
c. What is the PVGO of Dillon Mechanical?
d. What is the PVGO of Sterling?
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
