Hi! I need help answering the problem below. I have entered the answers I know but I
Question:
Hi! I need help answering the problem below. I have entered the answers I know but I need help with E-I. Can you walk me through it?
Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 7 percent over the next four years. The required rate of return is 14 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. Compute the anticipated value of the dividends for the next four years.
D1 - 4.28
D2 - 4.58
D3 - 4.90
D4- 5.24
b. Calculate the present value of each of the anticipated dividends at a discount rate of 14 percent.
D1 - 3.75
D2- 3.52
D3- 3.31
D4-3.10
Total = 13.68
c. Compute the price of the stock at the end of the fourth year (P4).
$80.10
d. Calculate the present value of the year 4 stock price at a discount rate of 14 percent.
$47.3
e. Compute the current value of the stock.
f. Use the formula given below to show that it will provide approximately the same answer as part e.
P0=D1/KE-G
g. If current EPS were equal to $5.89 and the P/E ratio is 20% higher than the industry average of 9, what would the stock price be?
h. By what dollar amount is the stock price in part g different from the stock price in part f?
i. With regard to the stock price in part f, indicate which direction it would move if:
1 - D1 Increases
2 - Ke Increases
3 - g increases