The managers at Jackson Presley also believe that they are significantly undervalued, and want you to estimate how much the equity in the firm is truly worth They provide you with the following additional information They believe that they can maintain 'high growth' for the next five years The beta calculated of 1 0815, is a good estimate of the beta for the next five years The dividend payout ratio will be maintained at 25 for the high growth period The current (from the current income statement and balance sheet) return on capital, debt equity ratio and interest rate will be maintained for the high growth period (The book value of equity at the beginning of the year was $ 100 million but the book value of debt is unchanged) There are 12 million shares outstanding After the high growth period, the earnings growth rate is expected to drop to 6 , and the firm's return on capital will also drop to 15 The debt equity ratio and interest rate are expected to remain unchanged The beta is expected to be 1 00 in the stable growth period Income Statement Last Year Last Year Current Year Revenues $ 100 million $150 million Cost of Goods Sold $ 40 million $ 60 million Depreciation Amortization $ 10 million $ 13 million Earnings before interest and taxes $ 50 million $ 85 million Interest Expenses $ 0 $ 5 million Taxable Income $ 50 million $ 80 million Taxes $ 20 million $ 32 million Net Income $ 30 million $ 48 million The company's current balance sheet also provides an indication of the company's health Assets Liabilities Property, Plant Equipment $ 100million Current Liabilities $ 20 million Land and Buildings $ 50 million Deb $ 60 million Current Assets $ 50 million Equity $120 million Total $200 million Total $200 million a Estimate the expected growth rate in the high growth period ( 2 points) b Estimate the expected dividends in the high growth period (1 point) c Estimate the expected payout ratio in the stable growth phase (2 points) d Estimate the terminal price (at the end of the high growth period) (2 points) e Estimate the value today from the dividend discount model (1 point)

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Posted on Sep 21, 2024

The managers at Jackson-Presley also believe that they are significantly undervalued, and want you to estimate how much the equity in the firm is truly

The managers at Jackson-Presley also believe that they are significantly undervalued, and want you to estimate how much the equity in the firm is truly worth. They provide you with the following additional information They believe that they can maintain 'high growth' for the next five years. The beta calculated of 1.0815, is a good estimate of the beta for the next five years. The dividend payout ratio will be maintained at 25% for the high-growth period. The current (from the current income statement and balance sheet) return on capital, debt equity ratio and interest rate will be maintained for the high growth period. (The book value of equity at the beginning of the year was $ 100 million but the book value of debt is unchanged) There are 12 million shares outstanding. After the high-growth period, the earnings growth rate is expected to drop to 6%, and the firm's return on capital will also drop to 15%. The debt equity ratio and interest rate are expected to remain unchanged. The beta is expected to be 1.00 in the stable growth period.

Income Statement

	Last Year	Last Year Current Year
Revenues	$ 100 million	$150 million
- Cost of Goods Sold	$ 40 million	$ 60 million
- Depreciation & Amortization	$ 10 million	$ 13 million
Earnings before interest and taxes	$ 50 million	$ 85 million
Interest Expenses	$ 0	$ 5 million
Taxable Income	$ 50 million	$ 80 million
Taxes	$ 20 million	$ 32 million
Net Income	$ 30 million	$ 48 million

The company's current balance sheet also provides an indication of the company's health

Assets		Liabilities
Property, Plant & Equipment	$ 100million	Current Liabilities	$ 20 million
Land and Buildings	$ 50 million	Deb	$ 60 million
Current Assets	$ 50 million	Equity	$120 million
Total	$200 million	Total	$200 million

a. Estimate the expected growth rate in the high growth period. ( 2 points) b. Estimate the expected dividends in the high growth period. (1 point) c. Estimate the expected payout ratio in the stable growth phase. (2 points) d. Estimate the terminal price (at the end of the high-growth period) (2 points) e. Estimate the value today from the dividend discount model. (1 point)