60.1K

Verified Solution

Link Copied!

Please show all steps, details, and formula

1. Colgate-Palmolive Company has just paid an annual dividend of $0.96. Analysts are predicting an 11% per year growth rate in earnings over the next five years. After that, Colgates earnings are expected to grow at the current industry average of 5.2% per year. If Colgates equity cost of capital is 8.5% per year and its dividend payout ratio remains constant, for what price does the DDM predict Colgate stock should sell?

2. Halliford Corporation expects to have earnings this coming year of $3 per share. Halliford plans to retain all of its earnings for the next years. Then, for the subsequent two years, the firm will retain 50% of its earnings. It will retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25% per year. Any earnings that are not retained will be paid out as dividends. Assume Hallifords share count remains constant and all earnings growth comes from the investment of retained earnings. If Hallifords equity cost of capital is 10%, what price would you estimate for Halliford stock? (Organize results in a table)

3. Suppose Cisco System pays no dividends but spent $5 billion on share repurchases last year. If Ciscos equity cost of capital is 12%, and if the amount spent on repurchases is expected to grow by 8% per year, estimate Ciscos market capitalization. If Cisco has 6 billion shares outstanding, to what stock price does this correspond?

Answer & Explanation Solved by verified expert

See Answer