Justin Cement company had the following pattern of earnings per share over the l

Question

Justin Cement company had the following pattern of earnings per share over the last 5 years:

Year Earnings per share

2006 $11.00

2007 $11.55

2008 $12.13

2009 $12.74

2010 $13.38

The earnings per share have grown at a constant rate (on a rounded basis) and is expected to do so in he future. Dividends represent 40% of earnings.

a. Project earnings and dividends for the next year (2011). Round intermediate and final answers to 2 decimal places

Earnings?

Dividends?

b. If the required rate of return (Ke) is 13%, what is the anticipated stock price (Po) at the beginning of 2011? Round your intermediate and final answers 2 decimal places.

Anticipated stock price?

Explanation / Answer

2007/2006 = 11.55/11=5%

2008/2007 = 12.13/11.55 =5%

2010/2009 =13.38/12.74 = 5%

projected EPS for 2011 = 13.38 * 1.05 =14.049

dividend = 40% * 14.049 =5.76

b)price = 5.76/0.13-0.05

=72

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