Question
16. Batts Industries had an EPS of $5.00 per share this year, pays a dividend of $2.20 per share and is expected to pay this
16. Batts Industries had an EPS of $5.00 per share this year, pays a dividend of $2.20 per share and is expected to pay this amount indefinitely. If Batts equity cost of capital is 11%, calculate Batts expected stock price. (1 mark) 2.20/0.11 = 20 17.
If Toms Industries had an EPS of $5.00 per share this year, pays a dividend of $2.20 per share and the dividend is expected to grow by 5% per year indefinitely. If Toms equity cost of capital is 11%, calculate Toms expected stock price. (1 mark) 2.20*1.05/0.11-0.05 = 38.50 18.
From questions 19 and 20 above, calculate the price earning ratio (P/E) for both Batts and Toms. (2 marks)
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