Panhandle Industries, Inc., currently pays an annual common stock dividend of $2.20 per share. The companys dividend

Question:

Panhandle Industries, Inc., currently pays an annual of $2.20 per share. The company’s has grown steadily over the past nine years from $1.10 to its present level; this growth trend is expected to continue. The company’s present payout ratio, also expected to continue, is 40 percent. In addition, the stock presently sells at 8 times current earnings (that is, its P/E multiple is 8). Panhandle Industries stock has a beta of 1.15, as computed by a leading investment service. The present risk-free rate is 7.0 percent, and the on the stock market is 13.0 percent.
a. Suppose an individual investor feels that 12 percent is an appropriate required rate of return for the level of risk this investor perceives for Panhandle Industries. Using the capitalization model and the approaches, determine whether this investor should purchase Panhandle Industries stock.
b. Calculate the company’s capital using both the capitalization model approach and the approach.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...