For Bills Bakery described in Problem 13, suppose instead that current earnings per share are $2.56. Calculate

Question:

For Bill’s Bakery described in Problem 13, suppose instead that current earnings per share are $2.56. Calculate the share price for Bill’s Bakery.

Data From Problem 13

Bill’s Bakery expects earnings per share of $2.56 next year. Current book value is $4.70 per share. The appropriate discount rate for Bill’s Bakery is 11 percent. Calculate the share price for Bill’s Bakery if earnings grow at 3 percent forever.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...