Person C and Person GR are the founders and owners of the R Company. This company manufactures and installs heating, ventilation, and cooling units (HVAC) commercially. Both the owners have 50,000 share of company’s stock as per the partnership deed. They wanted to sell their stocks and decided to value their holding in the company. R Company has earnings per share of $3.15 and the dividends of $45,000 each were paid to the owners of the company. Moreover, there is even return on equity (ROE) of 17% and the required rate of return is 14%. Characters in the case: R Company: The firm that wants to value their stocks Person C: Co-owner of Company R Person GR: Co-owner of Company R To determine: The Company’s value per share of the stock.

Question

Want to see the full answer?

Answer 1

Question

Chapter 8, Problem 1M

Summary Introduction

Case summary:

Person C and Person GR are the founders and owners of the R Company. This company manufactures and installs heating, ventilation, and cooling units (HVAC) commercially. Both the owners have 50,000 share of company’s stock as per the partnership deed. They wanted to sell their stocks and decided to value their holding in the company.

R Company has earnings per share of $3.15 and the dividends of $45,000 each were paid to the owners of the company. Moreover, there is even return on equity (ROE) of 17% and the required rate of return is 14%.

Characters in the case:

R Company: The firm that wants to value their stocks

Person C: Co-owner of Company R

Person GR: Co-owner of Company R

To determine: The Company’s value per share of the stock.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

The dividend growth model determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate. true or false

The book value per share a. is usually a close approximation of the market price per share. b. is the same as the par value per share. c. may be useful in determining the trend of a shareholders’ per share equity in a corporation. d. always falls within the annual range of a company's market value per share.

The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: D1 PO (rs g) Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.85 at the end of the year. Its dividend is expected to grow at a constant rate of 6.00% per year. If Walter's stock currently trades for $26.00 per share, what is the expected rate of return? 6.10% 6.77% 16.96% 13.36% Which of the following statements will always hold true? The constant growth valuation formula…