Question
The following information is for company XYZ. It is based in the USA. The following information was given: EPS: $3.80 Book Value of debt: $2
The following information is for company XYZ. It is based in the USA. The following information was given:
EPS: $3.80
Book Value of debt: $2 Billion
Book Value of equity: $4 Billion
Total shares: 70 million
As of today, share price is $90. Beta is 1.30.
Please note: XYZ pays a spread of 20 bp (basis points) over treasuries on its debt.
Assume ERP 7%. Risk-free 2%. Tax 30%.
Revenues and Earnings are expected to grow constantly for 5 years. There will be no dividends during those years.
Revenues were $4.3 Billion in 2000.
During its high growth and transition phases,
CAPEX will be 180% of depreciation - which is going to be 15% of revenue.
Working capital is 10% of revenue.
In the stable phases, ROE = 10%. Beta = 0.85. Debt/Equity ratio is 50%. Pay-outs ratios is 50%. Capex will use 140% of depreciation which will be 10% of revenues. Working capital remains at 10%.
Starting in 2006, firm begins transition phase where ROE and BETA decline linearly towards the stable rates. This transition is from 2006 to 2015 (10 years total). Stable growth starts 2016.
And finally, in 2006 they also introduce a dividend = 3% of net income. Dividend will go up by 3% a year during transition phase.
Question:
What is the current value of each share?
How to calculate the dividend for the following years or growth rate for the 2006?
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