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Question 8.1: An investor estimates that next yea...

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Question 8.1: An investor estimates that next year?s sales for New World Products should amount to about $75 million. The company has 2.5 million shares outstanding, generates a net profit margin of about 5% , and has a payout ratio of 50%. All figures are expected to hold for next year. Given this information, compute the following. a. Estimated net earnings for next year. b. Next year?s dividends per share. c. The expected price of the stock (assuming the P/E ratio is 24.5 times earnings). Answer 1. (a) Estimated net earnings = $3,750,000 (b) Estimated dividends per share = .75 (c) Expected price = 36.75 2. (a) Estimated net earnings = $3,250,000 (b) Estimated dividends per share = .25 (c) Expected price = 32.75 3. (a) Estimated net earnings = $2,750,000 (b) Estimated dividends per share = .72 (c) Expected price = 26.75 4. (a) Estimated net earnings = $3,722,000 (b) Estimated dividends per share = .22 (c) Expected price = 36.22

 

Paper#8635 | Written in 18-Jul-2015

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