Chapter_06web

# Chapter_06web - EXERCISES FOR CHAPTER 6 With Solutions...

This preview shows pages 1–2. Sign up to view the full content.

EXERCISES FOR CHAPTER 6 With Solutions Exercise 1. Forecasting Earnings from a Market Price: The Coca Cola Company The Coca-Cola Co (KO) traded at \$43 per share at the close of trading on September 25, 2003. Coke had reported earnings per share (eps) of \$1.23 for the year ending December 31, 2002, along with an annual dividend per share (dps) of 0.88. Analysts were estimating consensus eps of \$1.90 for 2003 and \$2.06 for 2004, and dividends of \$0.90 each year. Use a cost of equity capital of 9% in calculations. a. Calculate the forward traded P/E ratio. What is the normal forward P/E for this stock? Comparing the traded P/E with the normal P/E, what statements can you make about the market’s expectations of future earnings growth? b. Calculate the trailing P/E. What is the normal trailing P/E for this stock? Why is the trailing P/E so much higher than the forward P/E? c. The analysts’ forecasts indicate a growth rate for eps of 8.42% in 2004. What is the 2004 cum-dividend growth rate implied by the forecasts, and what is the

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

### Page1 / 3

Chapter_06web - EXERCISES FOR CHAPTER 6 With Solutions...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online