HomeworkLib
Question

Dave's Tool Shops (DTS) earned $3.50 per share this year. Earnings are expected to grow at...

Dave's Tool Shops (DTS) earned $3.50 per share this year. Earnings are expected to grow at 5% next year. DTS pays out 60% of earnings as dividends. If similar firms currently have P/E ratios of 7.5 based on forecasted earnings, what market price will we observe for DTS?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Earnings per share (EPS) = $3.50

Dividend per share (DPS) = EPS * Payout

= $3.50 * 0.60

= $2.10

The earnings are expected to grow at 5% next year

EPS for next year = $3.50 * 1.05

= $3.675

This is the forecasted earnings of DTS

Price earnings ratio = Price of stock / Earnings per share

7.5 = Price of stock / $3.675

Price of stock = 7.5 * $3.675

= $27.5625

The market price of DTS = $27.5625

0 0
Add a comment
Know the answer?
Add Answer to:
Dave's Tool Shops (DTS) earned $3.50 per share this year. Earnings are expected to grow at...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its...

    Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $2, the market capitalization rate is 12% and next year’s EPS is $9. What is Z-prime’s stock price?

  • Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its...

    Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $9, the market capitalization rate is 9% and next year’s EPS is $14. What is Z-prime’s stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  • Company Z prime's earnings and dividends per share are expected to grow by 2% a year....

    Company Z prime's earnings and dividends per share are expected to grow by 2% a year. Its growth will stop after year 4 In year 5 and afterward it will pay out all eamings as dividends Assume next year's dividend is $6, the market capitalization rate is 12% and next year's EPS is $11. What is Z-prime's stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price

  • Company Z's earnings and dividends per share are expected to grow indefinitely by 3% a year....

    Company Z's earnings and dividends per share are expected to grow indefinitely by 3% a year. Assume next year's dividend per share is $19 and next year's EPS is $4. The market capitalization rate is 11%. If Company Z were to distribute all of its earnings, it could maintain a level dividend stream of $4 a share. How much is the market actually paying per share for growth opportunities?

  • Company's Z's earnings and dividends per share are expected to grow indefinitely by 3% a year....

    Company's Z's earnings and dividends per share are expected to grow indefinitely by 3% a year. Assume next year's dividend per share is $2 and next year's EPS is $3. The market capitalization rate is 9%. If Company Z were to distribute all of its earnings, it could maintain a level dividend stream of $3 a share. How much is the market actually paying per share for growth opportunities? (Do not round intermediate calculations. Negative amount should be indicated by...

  • 10. Company Z's earnings and dividends per share are expected to grow indefinitely by 5% a...

    10. Company Z's earnings and dividends per share are expected to grow indefinitely by 5% a year. If next year's dividend is $10 and the market capitalization rate is 8%. If company Z were to distribute all its earnings, it could maintain a level dividend stream of $15 a share(EPS-15) How much is the market actually paying per share for growth opportunities? (a) $122.90 (b) $137.55 (c) $145.83 (d) $157.44

  • Hancock Inc. retains most of its earnings. The company currently has earnings per share of $11....

    Hancock Inc. retains most of its earnings. The company currently has earnings per share of $11. Hancock expects its earnings to grow at a constant rate of 2 percent per year. Furthermore, the average PE ratio of all other firms in Hancock's industry is 14. Hancock is expected to pay dividends per share of $3.50 during each of the next three years. If investors require a 10 percent rate of return on Hancock stock, a fair price for Hancock stock...

  • Temple Lunch Trucks, Inc. just paid a dividend of $3.50. Dividends are expected to grow at...

    Temple Lunch Trucks, Inc. just paid a dividend of $3.50. Dividends are expected to grow at a rate of 4% per year from here on out. If the risk-free rate is 2.5%, the expected return on the market is 5% and Temple Lunch Trucks’ stock has twice the average market risk, what is the most that you should be willing to pay for a share of this stock today?

  • The FI Corporation’s dividends per share are expected to grow indefinitely by 8% per year. a....

    The FI Corporation’s dividends per share are expected to grow indefinitely by 8% per year. a. If this year’s year-end dividend is $4.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $16.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) c. How much is the market paying per share...

  • The Fl Corporation's dividends per share are expected to grow indefinitely by 8% per year. a....

    The Fl Corporation's dividends per share are expected to grow indefinitely by 8% per year. a. If this year's year-end dividend is $3.00 and the market capitalization rate is 10% per year, what must the current stock price be according to the DDM? b. If the expected earnings per share are $9.00, what is the implied value of the ROE on future investment opportunities? (Round your answer to 2 decimal places.) c. How much is the market paying per share...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT