1) Valence Electronics has 217 million shares outstanding. It expects earnings a
ID: 2632070 • Letter: 1
Question
1) Valence Electronics has 217 million shares outstanding. It expects earnings at the end of the year of $760 million. Valence pays out 40% of its earnings in total?15% paid out as dividends and 25% used to repurchase shares. If Valence's earnings are expected to grow by 6% per year, these payout rates do not change, and Valence's equity cost of capital is 8%, what is Valence's share price?
A) $10.51
B) $24.40
C) $56.60
D) $70.05
2) Jumbo Transport, an air-cargo company, expects to have earnings per share of $2.50 in the coming year. It decides to retain 20% of these earnings in order to lease new aircraft. The return on this investment will be 25%. If its equity cost of capital is 12%, what is the expected share price of Jumbo Transport?
A) $16.67
B) $19.23
C) $24.75
D) $28.57
3) In the past, Sunnyfax Publishing paid out all its dividends as earnings. When the stock market opened for trading today, Sunnyfax
Explanation / Answer
1.(b)
2.(a)
3.(a)
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