question19

Essentials of Corporate Finance LO 2 13. Stock Valuation and PE Ratio. The Sleeping Flower Co. has earnings of $2.65 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21? CHAPTER 7 Equity Markets and Stock Valuation 231 LO 2 14. Stock Valuation and PS Ratio. TwitterMe. Inc., is a new company and currently has negative earnings. The company's sales are $1.35 million and there are 130,000 shares outstanding. If the benchmark price-sales ratio is 4.8, what is your estimate of an appropriate stock price? What if the price-sales ratio were 3.77 INTERMEDIATE (Questions 15-30) LO 115. Nonconstant Growth. Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years. because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $19 per share 10 years from today and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price? LO1 16. Nonconstant Dividends. Hot Wings, Inc. has an odd dividend policy. The company has just paid a dividend of $3 per share and has announced that it will increase the dividend by $5 per share for each of the next four years, and then never pay another dividend. If you require a return of 10.4 percent on the company's stock, how much will you pay for a share today? LO1 17. Nonconstant Dividends. Apocalyptica Corporation is expected to pay the following dividends over the next four years: S6, $12, S17, and $3.25. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends, forever. If the required return on the stock is 11 percent what is the current share price? LO 1 18. Supernormal Growth. Burton Corp. is growing quickly, Dividends are expected to grow at a rate of 25 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 11.5 percent and the company just paid a dividend of $2.50, what is the current share price? LO1 19. Negative Growth. Antiques 'R' Us is a mature manufacturing firm. The company just paid a dividend of $16.30 but management expects to reduce the payout by 4.5 percent per year, indefinitely. If you require a return of 12 percent on this stock, what will you pay for a share today