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You are considering investing in the company Husky Inc. The company just paid $2 dividends over the course of last year. The company is going
You are considering investing in the company Husky Inc. The company just paid $2 dividends over the course of last year. The company is going through a global expansion currently. You estimate that the company will pay annual dividends of $3,$4.5,$6.75, $10.125, and $15.1875 for the next 5 years. After that, the company will continue to pay annual dividends growing at a long-term, sustainable growth rate. You conducted extensive fundamental research into Husky Inc. and made the following predictions about the company's business 5 years from now. You believe the company will have a net profit margin of 60% and an asset turnover of 2%. In 5 years, Husky Inc. will be relatively mature and therefore the management of the company is comfortable with operating the company with a substantial amount of debt. You believe the company's debt will be three times its equity. Also, since the company is relatively mature, the management will pay 3/8 of its net income as dividends, as opposed to a dividend payout ratio of 1/4 currently. You are not sure what discount rate to use but think the appropriate discount rate for Husky Inc. should be its weighted average cost of capital. You gathered the following information about the return of different securities: Husky Inc. just received a credit rating of A because of its substantial amount of borrowing. You think Husky Inc. has a slightly aboveaverage systematic risk and estimate that its beta should be 1.2 . What is the fundamental price for Husky Inc.? Enter a number with 2 decimals, i.e., if the answer is $20, enter 20.00 . Given your estimate of the fundamental price, what's the P/E ratio of the company? Enter a number with 2 decimals, i.e., if the answer is 20 , enter 20.00
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