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Nautilus Marine Engine's negative earnings per share (EPS) were the result of an accounting write-off last year. Without the write-off, EPS for the company would have been $2.07. Last year, Ragan had an EPS of $5.35 and paid a dividend to Carrington and Genevieve of $320,000 each. The company also had a return on equity of 21%. Larissa tells Dan that a required return for Ragan of 18% is appropriate. 1.) Assuming the company continues its current growth rate, what is the value per share of the company's stock? 2.) Dan has examined the company's financial statements, as well as examining those of its competitors. Although Ragan currently has a technological advantage, Dan's research indicates that Ragan's competitors are investigating other methods to improve efficiency. Given this, Dan believes that Ragan's technological advantage will last for the next five years. After that period, the company's growth will likely slow to the industry average. Additionally, Dan believes that the required return the company uses is too high. He believes the industry average required return is more appropriate. Under Dan's assumption, what is the estimated stock price? 3.) What is the industry average price-earnings ratio? What is Ragan's price-earnings ratio? Comment on any differences and explain why they may exist. 4.) Assume the company's growth rate declines to the industry average after five years. What percentage of the stock's value is attributable to growth opportunities? 5.) Assume the company growth rate slows to the industry average in five years. What future return on equity does this imply? 6.) Carrington and Genevieve are not sure if they should sell the company. If they do not sell the company outright to East Coast yachts, they would like to try and increase the value of the company's stock. They want to retain the company and do not want to sell stock to outside investors. They also feel that the company's debt is at a manageable level and do not want to borrow more money. What steps can they take to try and increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price? Blue Ribband Motors Corp- EPS=$1.09 DPS=$.19 Stock Price=$16.32 ROE=10.00% R=12.00% Bon Voyage Marine Inc.- EPS=1.26 DPS=.55 Stock Price=13.94 ROE=12.00% R=17.00% Nautilus Marine Engines- EPS=(.27) DPS=.57 Stock Price=23.97 ROE=N/A R=16.00% Industry Average- EPS=$.73 DPS=$.44 Stock Price=$18.08 ROE=11.00% R=15.00%
The risk-free rate is 6.7%, the market risk premium is 8.1%, and the stock's beta is 0.45. What is the cost of common stock (Ke)?
Describe how each of the subsequent actions or problems can distort or disrupt the capital budgeting process. Over optimism by project sponsors. Inconsistent forecasts of industry and macroeconomic variables.
Proform a income statement Pro forma balance sheet Sales $ Assets $ Debt $ Costs Equity Net income $ Total $ Total $ Determine the external financing needed. (Negative amount should be indicated by a minus sign.) External financing needed $.
What is The coupon rate and it is true that the asset of an operating lease will show up on the balance sheet
The firm yesterday paid a dividend of $7.80. You have projected that dividends will grow at a rate of 9.0% per year indefinitely. If you want an annual return of 24.0%, what is the most you should pay for the stock now?
Assume that interest rate parity holds and that 90-day risk-free securities yield a nominal annual rate of 3% in the United States and a nominal annual rate of 35% in the United Kingdom. In the spot market, 1 pound $1.56.
However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?
How should the capital structure weights used to calculate the WACC be determined?
The factoring department of Inter American Bank is processing 100,000 invoices each year with an average invoice price of $1,500. IAB buys the account receivables at 3.5% off the invoice value.
Your firm has 25 million shares outstanding and they trade at $ 30. Net Income this year will be $ 3 million. You have $ 15 million to use and you plan to buy-back shares.
Philadelphia Corporation's stock recently paid a dividend of $2.00 per share, and the stock is in equilibrium. The corporation has a constant growth rate of 5% and a beta equal to 1.5.
Alabama Power Company preferred stock with a $50 par value and a dividend of $2.8125 per year. The stock is currently trading at $39 per share.
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