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Dividends per share Company Zs earnings and dividends per share are expected to grow indefinitely by 5% a year. If next years dividend is $10

Dividends per share

Company Zs earnings and dividends per share are expected to grow indefinitely by 5% a year. If next years dividend is $10 and the market capitalization rate is 8%, what is the current stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Company Z-primes earnings and dividends per share are expected to grow by 5% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next years dividend is $10, the market capitalization rate is 8% and next years EPS is $15. What is Z-primes stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Stock price

$

Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made at the beginning of 2016 are as follows:

($ millions)

2017

2018

2019

2020

2021

Net income

1.0

3.8

6.8

7.3

7.6

Investment

1.0

2.8

3.0

3.2

3.2

Free cash flow

0

1.0

3.8

4.1

4.4


Phoenixs recovery will be complete by 2021, and there will be no further growth in free cash flow.

a.

Calculate the PV of free cash flow, assuming a cost of equity of 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Present value

$ million

b.

Assume that Phoenix has 15 million shares outstanding. What is the price per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price per share

$

c.

What is Phoenixs P/E ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

P/E ratio

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