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

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

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