Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

P9-18 (similar to) Question Help Benchmark Metrics Inc. (BMI), an all-equity financed firm, reported EPS of $4.46 in 2008. Despite the economic downturn, BMI is

image text in transcribed
image text in transcribed
P9-18 (similar to) Question Help Benchmark Metrics Inc. (BMI), an all-equity financed firm, reported EPS of $4.46 in 2008. Despite the economic downturn, BMI is confident regarding its current investment opportunities. But due to the financial crisis, BMI does not wish to fund these investments externally. The Board has therefore decided to suspend its stock repurchase plan and cut its dividend to $0.55 per share (vs. almost $2 per share in 2007), and retain these funds instead. The firm has just paid the 2008 dividend, and BMI plans to keep its dividend at $0.55 per share in 2009 as well. In subsequent years, it expects its growth opportunities to slow, and it will still be able to fund its growth internally with a target 36% dividend payout ratio, and reinitiating its stock repurchase plan for a total payout rate of 62% (All dividends and repurchases occur at the end of each year.) Suppose BMI's existing operations will continue to generate the current level of earnings per share in the future. Assume further that the return on new investment is 15%, and that reinvestments will account for all future earnings growth (if any). Finally, assume BMI's equity cost of capital is 10% a. Estimate BMI's EPS in 2009 and 2010 (before any share repurchases). b. What is the value of a share of BMI at the start of 2009 (end of 2008)? Hint. Make sure to round all intermediate calculations to at least four decimal places a. Estimate BMI's EPS in 2009 and 2010 (before any share repurchases) BMI's EPS in 2009 is $(Round to the nearest cent.) P9-8 (similar to) Question Help In mid-2018, some analysts recommended that General Electric (GE) suspend its dividend payments to preserve cash needed for investment. Suppose you expected GE to stop paying dividends for two years before resuming an annual dividend of $1.25 per share, paid 4 years from now, growing by 3% per year. If GE's equity cost of capital is 8.7%, estimate the value of GE's shares today The price today is so (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

Step: 3

blur-text-image

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

Foundations Of Personal Finance

Authors: Sally R. Campbell, Robert L. Dansby

9th Edition

1619603578, 9781619603578

More Books

Students also viewed these Finance questions