Question: Please show all calculations. formula and numbers clearly labeled Cracker Barrel, which operates restaurants and gift shops, reported dramatic growth in earnings and revenues between
Please show all calculations. formula and numbers clearly labeled
| Cracker Barrel, which operates restaurants and gift shops, reported dramatic growth in earnings and revenues between 1983 and 1992. During this period earnings | |||||
| Earnings grew from 50.08 per share in 1983 to $0.78 per share in 1993. The Dividend paid in 1993 amounted to only $0.02 per share. The earnings growth rate was | |||||
| expected to ease to 15% a year from 1994 to 1998, and to 6% a year after that. The payout ratio was expected to increase to 10% from 1994 To 1998, and to 50% | |||||
| after that The beta of the stock was 1.55, but it was expected to decline to 1.25 for the 1994-1998 time period and to 1.10 after that. The Treasury bond rate was | |||||
| 7% and the risk premium is 5.5%) | |||||
| a. Estimate the PE ratio for Cracker Barrel. | |||||
| b. Estimate how much higher the PE ratio would have been if it had been able to maintain the growth rate in earnings that it had posted between 1983 and | |||||
| 1993. (Assume that the dividend payout ratios are unaffected.) | |||||
| c. Now assume that disappointing earnings reports in the near future lower the expected growth rate between 1994 and 1998 to 10%. Estimate the PE ratio. | |||||
| (Again, assume that the dividend payout ratio is unaffected.) | |||||
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