mid-September 2005‚ Ashley Swenson‚ chief financial officer (CFO) of Gainesboro Machine Tools Corporation‚ paced the floor of her Minnesota office. She needed to submit a recommendation to Gainesboro’s board of directors regarding the company’s dividend policy‚ which had been the subject of an ongoing debate among the firm’s senior managers. Compounding her problem was the uncertainty surrounding the recent impact of Hurricane Katrina‚ which had caused untold destruction across the southeastern
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valued the stock at $162 a share‚ while AT&T estimated its value at $100 a share. The difference resulted in a whopping $1.6 billion. As this example demonstrates‚ stock valuation seems to be both art and science. In this cyber-problem‚ use the dividend growth model’s constant growth assumptions to value Emerson’s stock. In addition‚ you will apply the concepts of risk and return by estimating the stock’s required return from the CAPM model. In order to arrive at a value for Emerson Electric‚ you
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SHARE | | | | | | | | | EPS= | NET INCOME - PREFERRED DIVIDENDS | | | | AVE. NO. OF COMMON SHARES OUTSTANDING | | | | | | | | | NET INCOME | OUTSTANDING SHARES | | | 3‚637‚297‚943 | 2010 | 1‚053‚438‚818 | | | | 2009 | 1‚051‚458‚156 | | | | | | | EPS= | 3‚637‚297‚943 | | | | (1‚053‚438‚818 + 1‚051‚458‚156)/2 | | | | | EPS is computed because earnings form the basis for dividend payments and future increases in value of shares | | | EPS=
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The firm’s stocks are undervalued. According to the dividends‚ growth rate‚ and discount rate the share price should be $43.36 which is $8.11 higher than the current market price. If the repurchase of $1Million worth of shares occurs‚ the company’s Return on Equity would increase. This would happen since there is less shareholder’s equity in the company due to the lower amount of shares outstanding. Currently the company’s Return on Equity is better than Standard Auto and Allied Motors but worse
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option available. K(cost of Equity)=RF+Beta(RM-RF) 5.870-5.39+0.8(6-5.39) Therefore the cost of equity is 5.870% For the dividend discount model the rate of growth is zero. Although (exhibit4) states that the value line forecast of dividend growth from 98-00 to ’04-’06 is 5.50% the total dividend paid in 1997 was 0.40 cents‚ but from 1998 to 2000 the dividend has been constant at 0.48
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with the same expected dividend and growth rates must alsohave the same stockprice.c. It is appropriate to use the constant growth model to estimate a stock ’svalue even if itsgrowth rate is never expected to become constant.d. If a stock has a required rate of return rs = 12%‚ and if its dividend isexpected to grow at aconstant rate of 5%‚ this implies that the stock’s dividend yield is also 5%.e. The price of a stock is the present value of all expected future dividends‚discounted at thedividend
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preferred and common stock valuation. 8-1 How does a right’s offering protect a firm’s stockholders against the dilution of ownership? 8-2 What is the purpose of a call feature in a preferred stock issued? 8-3 Over the past 5 years‚ the dividends of the Dave Corporation have grown from RM0.70 per share to the current level RM1.30 per share (D0). This growth rate is expected to continue for the foreseeable future. What is the value of a share of Dave Corporation common stock to an investor
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two parts: 1. Dividend 2. Retained Earnings As retained earnings are reinvested the book value grows as perplaw back ratio which is (1- dividend payout ratio).The company’s growth depends upon return on equity i.e profitability & reinvestment of retained earnings. As per the case‚ assuming the ROE of the year 2006 to 2011 for six years as the average ROE of year 2000 to 2005 i.e 15.58% and plaw back ratio as average of years 2000 to 2005 i.e 72.17%‚ we will compute the dividends‚ EPS and book
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Table of content Introduction 2 Financial Analysis of Morrisons 3 Critical Assessment of the ratio analysis of William Jackson Food Group 8 Limitations and recommendations References Introduction This paper deals with the question of how a ratio analysis can help in determining the true value of a company. Therefore a critical ratio analysis of Morrisons‚ a supermarket which is listed on the London Stock Exchange will be done and then compared with the William Jackson Food Group
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Financial Management Case Study-Payout: Gainesboro I. The goals of Gainesboro i. Corporate Goals Management expected the firm to grow at an average annual compound rate of 15% and reach $2.0 billion in sales and $160 million in net income through 2011. ii. Recent strategy of Gainesboro The company devoted a greater share of its research-and-development budget to CAD/CAM as to reestablish its leadership in the field. The company also underwent two massive restructurings‚ including selling
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