Consider the value of Kodak in 1970. At that time, the investment capital per sh

Question

Consider the value of Kodak in 1970. At that time, the investment capital per share (ICPS) for Kodak was $20. Given their market power, their return on investment was 15%. During that time, the required rate of return on Kodak was .14. In 1970, the policy of Kodak was to plowback 25 percent of its earnings per share.

Now consider what has happened to Kodak around the arrival of the new millennium.   The biggest development has been digital photography, which does not require the types of chemical processes that was the core of Kodak

Explanation / Answer

definition of 'Dividend Payout Ratio' The percentage of earnings paid to shareholders in dividends. Calculated as: dividend per share/earning per share thus eps=dps *'Dividend Payout Ratio EPS=20*.14 = 2.8 DPS= .75*2.8 = 2.1 Growth Rate =retention ratio*rate of return Growth Rate = .25*.15 = .0375 thus D1=D0(1+g) D1 = 2.1*(1+.0375) = 2.17875 price or p0=d1/ke-g Price or PO = 2.17875/(.14-.0375) = 21.256 or 21.26$

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