Question
Stock Valuation: Assets for a firm equal $2M and liabilities equal $1.5M for 2018. Net income and dividends equaled $225K and $100K respectively. The firm
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Stock Valuation: Assets for a firm equal $2M and liabilities equal $1.5M for 2018. Net income and dividends equaled $225K and $100K respectively. The firm has 100,000 outstanding shares as of the end of 2018. Net income is expected to grow at a rate of 5% per year for the next 2 years (2019 and 2020). The dividend payout ratio is expected to remain at 2018 levels for the foreseeable future. After 2018 abnormal earnings are expected to be $0. Cost of debt is 8.25% and the cost of equity is 12.75%. Determine the value of the firms stock per share at the end of 2018 using the accounting based equity valuation formula.
Stock Valuation: Assets for a firm equal $2M and liabilities equal $1.5M for 2018. Net income and dividends equaled $225K and $100K respectively. The firm has 100,000 outstanding shares as of the end of 2018. Net income is expected to grow at a rate of 5% per year for the next 2 years (2019 and 2020). The dividend payout ratio is expected to remain at 2018 levels for the foreseeable future. After 2018 abnormal earnings are expected to be $0. Cost of debt is 8.25% and the cost of equity is 12.75%. Determine the value of the firms stock per share at the end of 2018 using the accounting based equity valuation formula.
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Using Financial Accounting Information The Alternative to Debits and Credits
Authors: Gary A. Porter, Curtis L. Norton
7th Edition
978-0-538-4527, 0-538-45274-9, 978-1133161646
