Computer the fair value of the stock, Finance Basics

Future Ltd is a leading music entertainment company in the country and the stocks of the company are actively traded in the stock exchange. For the year just ended few days back, the company has reported earnings per share of Rs 10 and has paid a dividend of Rs 4 per share. The company has been following this payout ratio of 40% during last few years. The retained earnings are reinvested in new projects. The equity shareholders expect a minimum return of 20% from the investments.

Required:

Evaluate the fair value of the stock under each of the following conditions:

i. Consider the company invests all the retained earnings in projects that yield returns of 20%.

ii. Consider the company invests all the retained earnings in projects that yield returns of 20% but now decides to decrease the future payout ratio from 40% to 20%.

iii. Consider the company invests all the retained earnings in projects that yield returns of 30%. Payout ratio remains at 40%.

iv. Assume the company invests all the retained earnings in projects that yield returns of 30% but finds that it can not have adequate projects if it retained 60% of the profit. Thus the company now decides to increase the future payout ratio from 40% to 50%.

v. Consider the company will invest all the retained earnings only in project whose return is expected to be 10%. The company decides to increase the future payout ratio to 60%.

Posted Date: 10/21/2013 7:22:48 AM | Location : United States







Related Discussions:- Computer the fair value of the stock, Assignment Help, Ask Question on Computer the fair value of the stock, Get Answer, Expert's Help, Computer the fair value of the stock Discussions

Write discussion on Computer the fair value of the stock
Your posts are moderated
Related Questions
#what is an interest?

sir could you please tel me what is A/R process.


Financial Planning Project Instructions: You will serve as a financial advisor for your client to develop a financial plan. You can compile all the worksheets introduced in eac

What are the Functions of Stock Exchange Main functions performed b stock exchange are as follows: (1) Providing Liquidity and Marketability to existing securities: Sto

Ask questioAustralian’s Speleological App Projectn #Minimum 100 words accepted#

Discounts and Credit Terms Credit Terms Credit terms involve both the length of the credit time and the discount specified.  The terms 2/10, n/30 means that a 2 percent d

Disadvantages of Payback Period 1. Does not receive into account time value of money and supposes that a shilling obtained in the 1 st year and in the N th year have the sim

Example of Payback Period Method Suppose a project costs Sh.80,000 and will produce the following cash inflows as:                                  Cash inflows      Accumu

Valuation of Securities The previous methods were perfect for valuing the entire business however it is also essential to ascertain the value of part of a business namely shar