# Question: Next year Dillon Mechanical Inc s EPS is expected to be

Next year Dillon Mechanical Inc.'s EPS is expected to be $2. The firm is not expected to pay any dividends for the next four years. In year 5, a dividend of $1 is expected and subsequent dividends are expected to grow at 5 percent per year. Another firm’s (Sterling Inc.'s) next-year EPS is expected to be $5. Sterling has just paid a dividend of $5 (cheques were mailed out today). Its dividends are expected to grow at 1 percent per year. Assume that the cost of capital for both firms is 15 percent.

a. What should be the current share price of Dillon Mechanical Inc.?

b. What should be the current share price of Sterling Inc.?

c. What is the PVGO of Dillon Mechanical?

d. What is the PVGO of Sterling?

a. What should be the current share price of Dillon Mechanical Inc.?

b. What should be the current share price of Sterling Inc.?

c. What is the PVGO of Dillon Mechanical?

d. What is the PVGO of Sterling?

**View Solution:**## Answer to relevant Questions

Apex Financial Ltd. is concerned about the impact of errors in its estimates of the future dividend payout ratio for Barnett Steel Corporation. Assume that the current dividend is $1, ROE is fixed at 10 percent, and the ...As part of your duties at Apex Financial Ltd. you have been asked to review the analysis carried out by a rival company—Prime Group—of the WX Media Company. WX has had a constant P/E ratio for the past five years. ...The preferred shares of Chinook Electrical Co. have a par value of $100 and a dividend rate of 8 percent. The current price is $110. If the risk-free rate is 2 percent, what is the risk premium associated with these ...You have observed the following returns: 18 percent, −15 percent, 8 percent, 6 percent, and −12 percent.a. Calculate the geometric mean return.b. Calculate the arithmetic mean return.c. Calculate the variance and ...On January 1, FinCorp Inc. completed its analysis of the prospects for the Geriatric Toy Store and concluded that there was a 15-percent chance the stock price would be $150 in one year and an 85-percent chance the stock ...Post your question