Justin Cement Company has had the following pattern of earnings per share over t

Question

Justin Cement Company has had the following pattern of earnings per share over the last five years:

    

   

The earnings per share have grown at a constant rate (on a rounded basis) and will continue to do so in the future. Dividends represent 40 percent of earnings.

     

Project earnings and dividends for the next year (2011). (Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your answers to 2 decimal places.)

    

      

If the required rate of return (Ke) is 13 percent, what is the anticipated stock price (P0) at the beginning of 2011? (Round the growth rate to the nearest whole percent. Do not round any other intermediate calculations. Round your answer to 2 decimal places.)

       

Justin Cement Company has had the following pattern of earnings per share over the last five years:

Explanation / Answer

Ans.(a)

2011

Earning $24.53

Dividend $ 9.81

Grouth rate =10%

Ans.(b) $307.69

Working:

YEAR 2006 2007 2008 2009 2010 2011 EPS 11.00 11.55 12.13 12.74 13.38 14.72 Dividend 7.33 7.70 8.09 8.49 8.92 9.81 Earning 18.33 19.25 20.22 21.23 22.30 24.53 Required rate of return 13% Dividend 40% Grouth Rate Share price= Dividend /Ke .40/.13 Share Price 307.69 Share price D0(1+g)/(k-g) 307.69 8.92(1+g)/(.13-g) 10% Ans.

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