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(Refer to the INSIGHTS box on pages 94-95 before attempting this problem. Notice that the calculations called for here do not involve cost of capital.) William Edwards, Inc. (WEI) had one million shares of common stock outstand- ing on 12/31/20X0. The stock had been sold for an average of $8.00 per share and had a market price of $13.25 per share on that date. WEI also had a balance of $5.0 million in its retained earnings account on that date. The following projection has been made for WEI's next five years of operations:
Year
Net Income
Dividends/Share
Shares Issued
Average Issue Price
Stock Price 12/31
20X1
$700,000
$.20
None
NA
$13.75
20X2
840,000
.22
50,000
$14.00
14.25
20X3
750,000
.24
100,000
13.50
13.80
20X4
900,000
.26
14.50
15.00
20X5
860,000
.28
15.40
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