Acme Inc. had net profits of $1,000,000 last year, has 100,000 shares outstanding and has maintained a consistent retention ratio of 40% annually. Earnings are expected to grow at 15% for the next three years and then decline to 4% for perpetuity. Acme Inc.'s CFO has estimated their cost of capital at 12%. What is the present value price of the stock?

Acme Inc. had net profits of $1,000,000 last year, has 100,000 shares outstanding and has maintained a consistent retention ratio of 40% annually. Earnings are expected to grow at 15% for the next three years and then decline to 4% for perpetuity. Acme Inc.'s CFO has estimated their cost of capital at 12%. What is the present value price of the stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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