Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Halliford Corporation expects to have earnings this coming year of $3.35 per share. Halliford plans to retain all of its earnings for the next two

image text in transcribed

image text in transcribed

Halliford Corporation expects to have earnings this coming year of $3.35 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 53% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 27.58% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's The price per share is $ (Round to the nearest cent) hel Halliford Corporation expects to have earnings this coming year of $3.35 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 53% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 27.58% per year. Any eamings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained eamings. If Halliford's equity cost of capital is 9.8%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate x rate of return. The price per share is $ (Round to the nearest cent.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Institutions And Markets

Authors: Jeff Madura

10th International Edition

0538482176, 9780538482172

More Books

Students also viewed these Finance questions