Halliford Corporation expects to have earnings this coming year of $2.618 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 52% of its earnings. It will retain 21%of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 27.7% 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 equity cost of capital is 10.2%,what price would you estimate for Halliford stock?

Hi hello, i need some help figuring out how to make the table. How did they went from year 3 to 4 and figured the EPS growth, and EPS. And how did they figured thereafter the EPS. thank you

Review Worked Solution (Formula Solution) The following spreadsheet of Halliford's expected EPS and dividends per share can help determine the present value of the expected dividends 4 6 2 Year 277% 27.7% 14.404% 14.404% 5.817% EPS growth rate (versus prior year) EPS Retention ratio Dividend payout ratio Dividends $2.618 $3.343 S4.269 $4.884 $5.587 $5.912 100% 52% 48% S0.00 $2.049 $2.344 $4.414 $4.670 21% 79% 21% 79% 100% 0% 52% 48% 0% S0.00 From year 5 on, dividends grow at a constant rate of 5.817%. Therefore Div5 $4.41 = $100.71 P4 = 0.102-0.05817 The stock price will be the present value Divs Div4+PV4 $2.049 $2.344 $100.71 (1+0.1029 (1 +0.102)4 = $71.41 Done