Halliford Corporation expects to have earnings this coming year of $3.182 per share. Halliford plans to...

 

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Halliford Corporation expects to have earnings this coming year of $3.182 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 53% of its earnings. It will retain 18% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 23.6% 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 9.8%, what price would you estimate for Halliford stock? The stock price will be $ (Round to the nearest cent.) Halliford Corporation expects to have earnings this coming year of $3.182 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 53% of its earnings. It will retain 18% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 23.6% 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 9.8%, what price would you estimate for Halliford stock? The stock price will be $ (Round to the nearest cent.)

Answer rating: 100% (QA)

To estimate the price of Halliford stock we can use the Gordon Growth Model also known as the Dividend Discount Model which calculates the present val... View the full answer