Please answer the following questions
with showing the step
1. What are the two components of total return on a share of stock?
2.ABC Company earned $2.50 per share and paid $2.00 in dividends in the year just ended. ABC’s stock price is $42.00. If ABC Company expects dividends to grow 5% annually, and you require a 10% annual rate of return for this stock investment, answer the following questions:
§What is the estimated stock price in one year?
§What is the dividend yield for the year?
§What is the price appreciation or capital gain % for the year?
§What is the trailing (current) P/E ratio?
3.XYZ Corp earned $5.00 per share last year. XYZ Corp recently adopted a long term target to pay out 20% of all future earnings as dividends. So, the most recent dividend paid was $1.00 (20% of earnings per share of $5.00). Earnings and dividends are expected to grow at a constant rate of 4% in the future. You require a 10% rate of return on the stock investment. What are you willing to pay for XYZ Corp stock today?
4.ABC Company has the following estimates for free cash flow for the next three years:
§Year 1 = $48 million
§Year 2 = $51 million
§Year 3 = $56 million
After year 3, ABC Company expects that its cash flow will grow at 3% per year going forward. ABC Company has no excess cash, no debt and 10 million shares outstanding. It has a required rate of return for capital of 9%.
a.What is the PV of the expected free cash flow streams for ABC Company?
b.What is the expected stock price today, based on the above data?
5.Tampa, Inc. currently has an earnings per share of $2.00 and an earnings growth rate of 6% per year. If the benchmark Forward PE ratio is 15, what is the share price today? What is the estimated share price two years from now?