1. A company’s most recent earnings per share was $2.84 and it paid a dividend of $2.02 per share. You expect the company to increase its earnings per share over the next year by 1.27% and to maintain its payout ratio. Your target price for this share in 12 months is $45.16. If your required rate of return is 12.25%, how much would you be willing to pay for them today?
2. If, however, rather than planning to hold onto you position in the above company for 12 months, you have an indefinite holding period. What price would you be willing to purchase this share?
3. Shareholders in a company enjoy a payout ratio of 71.20% and a return on equity of 12.25%. Over the next 12 months this company is expected to generate $9.469bn of earnings on its 3.475bn shares. If your return on investment is 13.20%, what price would you be willing to pay for this share?
4. A company yesterday paid its annual dividend of $3.75 and maintained its historic 6.45 per cent annual rate of growth. You plan to purchase the shares today because you believe that the dividend growth rate will increase to 7.25 per cent for the next three years and the share price will be $63 per share at that point in time:
(a) How much should you be willing to pay for these shares if you require a 13.25 per cent return?
(b) What is the maximum price you should be willing to pay for these shares if you believe that an 8 per cent growth rate can be maintained indefinitely and you require a 13.2 per cent return?
5. Using Friday night’s closing share price price, what is the trailing (ie using historical values from the most recent financial statements) for Woolworths:
(a) Price / Book ratio
(b) Price / Earnings
(c) Price / Sales
(d) Price / cash flow