up 3.)The most recent Income Statement for the Hawk Company is shown here: Reven

Question

up 3.)The most recent Income Statement for the Hawk Company is shown here: Revenues Total Costs Net Income Total Dividends Paid 975,000 IS 712,500 262,500 $35,625 Revenues are forecasted to increase by 10% next year. The Net Profit Margin and Dividend Payout Ratio are expected to remain constant next year. In Excel, forecast the Income Statement (including Net Income and Dividends) for next year. SHOW YOUR WORK. (3 points) If the P/E ratio for the company is forecasted to be 15 next year with the number of shares outstanding is 100,000, then what is the predicted Earnings Per Share (EPS), predicted Stock Price (P), and predicted dividends per share (D1) for the Hawk Company next year using the Forecasted Income Statement? SHOW YOUR WORK. (3 points) b. Given your values for part b., what is the Expected Return of the Hawk Company over the coming year next year if the current stock price is $37.00 per share? SHOW YOUR WORK. (3 points) c. If the Required Return is 8.00%, would you recommend a BUY, SELL, or HOLD on the Hawk Company? EXPLAIN and/or SHOW YOUR WORK. (3 points) d.

Explanation / Answer

A) Profit Margin = 262500/975000 = 26.87 %

So the next year fore cast will be

Now,

b )

EPS : 288180.75/100000 = 2.88 Per Share

If P/E = 15 IMES

Price = 2.88*15 = 43.22 $

And Dividend = Pay out ratio was 13.57 % so D1 is 2.88* 13.57 % = .391 $ Per Share

C)

D1/Ke = Price

.391/Ke = 37$

.391/37 = Ke

Ke= 1.056%

d)

since required return is more than expected return of the company the stock must be sold.

Particulars Amount ($) Revenue 1072500 Less : Cost ( Bal Fig) 784319.25 Net profit : 26.87 % 288180.75

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