Exam 7: Valuing Stocks

Adelaide Industries expects to have earnings per share of $3.20 in the coming year.Adelaide has a return on new investment of 11%.If the firm's dividend payout rate is 60%,and its equity cost of capital is 8%,what is the value of Adelaide's stock?

Harbour Corporation pays a dividend of $2.15 per year,which is expected to grow at a rate of 3% per year.Harbour has a cost of capital of 12%,and an EPS of $4.42.Its competitor,Pallantine Inc.,pays a yearly dividend of $1.25 per year,which is expected to grow at a rate of 6% per year.Pallantine has an EPS of $5.19.Solve for Pallantine's cost of capital using the method of comparables.