04 Equity Wrap Up - paying any dividends. It is expected...

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Equity Wrap-up questions 1. Currently Featherstone Industries has earnings per share of $5.00 and 1 million shares outstanding. It has a policy of paying out all of its earnings as dividends. H. Rumpole Investors believes that Featherstone is about to take on an investment opportunity that will cost $10,000,000 next year and generate cash flows of $2,500,000 per year for 5 years beginning 2 years from now. How much would Rumpole be willing to pay for Featherstone? (r = 10%) 2. Jensen Company has many profitable investment opportunities and is currently not
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Unformatted text preview: paying any dividends. It is expected that Jensen will not pay any dividends until 11 years from now and that dividend will be $2.50. Dividends after that are expected to grow at 6% per year for all future years. The discount rate is 12%. What is the price of a share of Jensen 10 years from now, 1 year from now, today? Suppose that next year you see Jensen selling for $21.50 per share. Compare this to the answer above. What could have caused this?...
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