Halliford Corporation expects to have earnings this coming year of $3.24 per share. Halliford plans to...

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Halliford Corporation expects to have earnings this coming year of $3.24 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 46% of its earnings. It will then retain 23% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 22.21% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 11.7%, what price would you estimate for Halliford stock? Note: Remember that growth rate is computed as: retention rate x rate of return. The price per share is $. (Round to the nearest cent.) Halliford Corporation expects to have earnings this coming year of $3.24 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 46% of its earnings. It will then retain 23% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 22.21% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 11.7%, what price would you estimate for Halliford stock? Note: Remember that growth rate is computed as: retention rate x rate of return. The price per share is $. (Round to the nearest cent.)

Answer rating: 100% (QA)

To estimate the price per share for Halliford stock we can use the Dividend Discount Model DDM since the growth rate is driven by retained earnings an... View the full answer