Question: Security analysts following Health Sciences Inc use a simplified income
Security analysts following Health Sciences, Inc., use a simplified income statement method of forecasting. Assume that 2011 sales are $30 million and are expected to grow by 11 percent in 2012 and 2013. The after-tax profit margin is projected at 6.1 percent in 2012 and 5.9 percent in 2013. The number of shares outstanding is anticipated to be 700,000 in 2012 and 710,000 in 2013. Project earnings per share for 2012 and 2013. Round to two places to the right of the decimal point throughout the problem.
Answer to relevant QuestionsThe average P/E ratio for the industry that Health Science, Inc. is in is currently 24. If the company has a P/E ratio 20 percent higher than the industry ratio of 24 in 2012 and 25 percent higher than the industry ratio ...Assume the same facts as in problem 2, but with an ERP of 9 percent. What is the new value for Ke? What does this tell you about investors’ feelings toward risk based on the new ERP? What might a high dividend-payout ratio suggest to an analyst about a company’s growth prospects? Assume in part d of problem 10 that the firm had a sinking fund payment obligation of $200. How much before-tax income is required to cover the sinking-fund obligation? Would lower tax rates increase or decrease the ...Explain why in problem 3 return on equity was so much higher than return on assets.
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