Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This is the given data: Stone Meat Data Exhibit I Sales Stock In Millions Price Year Of Dollars EPS DPS Range 2002 60 0.560 0.30

This is the given data:

Stone Meat Data
Exhibit I
Sales Stock
In Millions Price
Year Of Dollars EPS DPS Range
2002 60 0.560 0.30 6-10
2003 63 0.500 0.30 5-9
2004 68 0.710 0.35 5-10
2005 85 0.880 0.40 8-12
2006 97 0.820 0.45 9-14
2007 119 0.940 0.45 12-20
2008 130 1.110 0.45 11-18
2009 145 1.350 0.45 15-24
2010 164 1.300 0.50 17-27
2011 173 1.600 0.50 20-30
2012 180 1.750 0.60

24-32

Growth

Exhibit II
Balance Sheet As of 12/31/2012 (figures in millions)
Cash 20
Accounts Receivable 10
Inventories 30
Plant and Equipment, net 60
Total Assets 120
Accounts Payable 20
Misc Accruals 10
Preferred Stock (5%) 10
Long term Debt 24
Common Stock (2.5 million shares) 12
Capital Surplus 4
Retained Earnings 40
Total Liabilities and Equity 120
The firm's bonds carried a 6% coupon,
a 12/31/2022 maturity and were selling for
$960 as of 6/30/2012.

So this is my question:

a. With the data given, you can calculate up to four geometric growth rates to apply to the dividend model, which is more appropriate?

The dividend rate because the model is based on dividends.
The earnings rate because the dividend was stabilized and does not reflect the growth pattern of the company.b
The growth in share price
The growth in sales because it is almost like earnings.

You do not need the growth rate.

b. What is the cost of equity using the dividend growth model? (Decimal answer to the fourth decimal place)

c. What is the cost of equity using the CAPM? (Decimal answer to the fourth decimal place)

Please label the answer A. B. and C. so I know what information goes to what question

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

Financial Markets And Institutions

Authors: Stanley Eakins Frederic Mishkin

9th Global Edition

1292215003, 978-1292215006

More Books

Students also viewed these Finance questions