TPPY investment in research and development has given it a techn advantage in manufacturing a previously difficult to make electrom firm is now experiencing rapid growth due to the advantages it no competitors. It estimates growth rates of 12% next year, 10% in th 9% the year after that. It believes that its competitors would have processes by the fourth year, at which time it expects its growth ra constant rate of 4% thereafter. Its last dividend was $1.80 per shar equity is 15%. What is the value of the stock today Po?

TPPY investment in research and development has given it a techn advantage in manufacturing a previously difficult to make electrom firm is now experiencing rapid growth due to the advantages it no competitors. It estimates growth rates of 12% next year, 10% in th 9% the year after that. It believes that its competitors would have processes by the fourth year, at which time it expects its growth ra constant rate of 4% thereafter. Its last dividend was $1.80 per shar equity is 15%. What is the value of the stock today Po?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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V Energy Tech Ltd. has just had a very profitable year as rising energy costs have driven a rapid increase in sales of its solar power cells. The firm also developed a new process which has lowered its manufacturing costs significantly. V Energy Tech believes that this new process will give it a major advantage over its competitors, which it estimates will last for three years. It expects to enjoy high profits during this period, estimating profit growth over the next three years to be 18%, 16% and 13% respectively, before returning to constant industry growth pattern of 6% per year in year 4. V Energy Tech Ltd. has just paid a dividend of $2.50 per share and expects that the dividend will grow at the same rate as its profits. The firm’s cost of capital is 9%. a. What is the firm’s share price today (P0)? b. What is the expected share price next year (P1)? c. Calculate the dividend yield for year 2. d. Calculate the current capital gains yield (year 1).
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(Identifying incremental revenues from new product innovations) Morten Food Products, Inc. is a regional manufacturer of salty food snacks. The firm competes directly with the national brands including Frito-Lay, but only in the U.S. Southeast. Last year Morten sold $300 million of its various chip products and hopes to increase its sales in the coming year by offering a new line of baked chips. The new product line is expected to generate $42 million in sales next year. However, the firm's analysts estimate that about 45 percent of these revenues will come from existing customers who switch their purchases from one of the firm's existing products to the new healthier baked chips. a. What level of incremental sales should the company analyst attribute to the new line of baked chips? b. Assume that 25 percent of Morten's existing customers are actively looking for a healthier snack alternative and will move to another company's baked chip offering if Morten does not introduce the new…
The High-Flying Growth Company (HFGC) has been expanding very rapidly in recent years, making its shareholders rich in the process. The average annual rate of return on the stock in the past few years has been 19%, and HFGC managers believe that 19% is a reasonable figure for the firm's cost of capital. To sustain a high growth rate, HFGC's CEO argues that the company must continue to invest in projects that offer the highest rate of return possible. Two projects are currently under review. The first is an expansion of the firm's production capacity, and the second project involves introducing one of the firm's products into a new market. Cash flows from each project appear in the following table: Year Plant expansion Product introduction 0 -3,500,000 -500,000 1 2,500,000 350,000 2 1,750,000 375,000 3 3,000,000 375,000 4 2,250,000…
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Company A is growing quickly, with current annual increases of 15% per year in both sales and net income. To fund its growth, it is reinvesting all of its net income each year in new productive opportunities (payout ratio = 0). Yesterday, the firm reported net income of $3.00 per share. This growth is expected to last for another five years (to the end of year 5 on the timeline), at which time they will have exploited most of the available high growth opportunities. The growth rate in net income will then fall to 7% and the firm will adopt a payout ratio of 50% with the first dividend paid at time period 6. If shareholders require a 17% return to hold the firm’s shares, how much would you expect each share to sell for today?
The financial manager of Company X has just received the sales forecast for next year and it indicates that the year's sales are expected to double in the second half. What are the challenges that Company X might face in increasing its production to meet the sales projections and how can these challenges be overcome? What risks does Company X face by ramping-up production to meet the sales forecast?
← You are an analyst working for Goldman Sachs, and you are trying to value the growth potential of a large, established company, Big Industries. Big Industries has a thriving R&D division that has consistently turned out successful products. You estimate that, on average, the division launches two projects every three years, so you estimate that there is a 67% chance that a project will be produced every year. Typically, the investment opportunities the R&D division produces require an initial investment of $10.3 million and yield profits of $1.09 million per year that grow at one of three possible growth rates in perpetuity: 3.3%, 0.0%, and -3.3%. All three growth rates are equally likely for any given project. These opportunities are always "take it or leave it" opportunities: If they are not undertaken immediately, they disappear forever. Assume that the cost of capital will always remain at 11.6% per year. What is the present value of all future growth opportunities Big Industries…

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