Halliford Corporation expects to have earnings this coming year of $3.26 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 46% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 20.12% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.9%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate × rate of return. The price per share is $_________________ (Round to the nearest cent.)

Halliford Corporation expects to have earnings this coming year of $3.26 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 46% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 20.12% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.9%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate × rate of return. The price per share is $_________________ (Round to the nearest cent.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 9P

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Question

Halliford Corporation expects to have earnings this coming year of

$3.26

per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain

46%

of its earnings. It will then retain

20%

of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of

20.12%

per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is

9.9%,

what price would you estimate for Halliford stock?

Note: Remenber that growth rate is computed as: retention rate

rate of return.

The price per share is

$_________________

(Round to the nearest cent.)

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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