19. (15 pts) Suppose that you are trying to estimate the price per share of common stock for the firm with the
following information from the firm's financial statements. There are no taxes. The number of shares is
50K. Total Assets at t=0 are $8 M and Debt outstanding is $3 M for all time. [Each bond is refinanced as it
matures]. Use beginning period Total Assets to calculate Net Income for the period. Show all your work.
Year
1
2
3
4
Total Assets
$8,000,000
(beginning of period)
Equity (beginning)
ROA (Net
.05
.06
.06
.06
Income/Total Assets)
Debt Outstanding
$3,000,000
$3,000,000
$3,000,000
$3,000,000
Net Income
Dividends
Total Assets (end of
period)
Equity (end of
period)
ROE
EPS
Div per share
Div growth rate
a. Fill in the table using a dividend payout rate of 20% of income.
b. What is the permanent growth rate of dividends? What is your price per share of common shares if the
discount rate is 6%?
C. What are earnings per share in year 1?
d. Would you call this an income or growth stock? Why?
e. How much of this value comes from growth opportunities? Show your work.