Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please show all work for calculations. Thanks you Benchmark Metrics Inc. (BMI), an all-equity financed firm, reported EPS of $5.41 in 2013. Despite the economic

image text in transcribedPlease show all work for calculations. Thanks you

Benchmark Metrics Inc. (BMI), an all-equity financed firm, reported EPS of $5.41 in 2013. 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 $0.73 per share (vs. almost $2 per share in 2012), and retain these funds instead. The firm has just paid the 2013 dividend, and BMI plans to keep its dividend at $0.73 per share in 2014 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 43% dividend payout ratio, and reinitiating its stock repurchase plan for a total payout rate of 64%. (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 2014 and 2015 (before any share repurchases). b. What is the value of a share of BMI at the start of 2014 (end of 2013)? a. Estimate BMI's EPS in 2014 and 2015 (before any share repurchases). BMI's EPS in 2014 is $ BMI's EPS in 2015 is b. What is the value of a share of BMI at the start of 2014 (end of 2013)? The value of a share of BMI at the start of 2014 is

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

Behavioral Finance And Investor Types

Authors: Michael M. Pompian

1st Edition

1118011503, 978-1118011508

More Books

Students also viewed these Finance questions