16Sparkle Jewelers expects to pay dividends (per share) of $0.60, $0.90, $2.40, and $3.50 dur- ing the next four years. Beginning in the fifth year, the dividend is expected to grow at a rate of 4 percent indefinitely. If investors require a 20 percent return to purchase Sparkle’s stock, what is the current value of the company’s stock?
7.18For the past 15 years, the P/E ratio of North/ South Travel has been between 28 and 30. If North/South’s earnings per share equal $4, in what price range would you estimate its stock should be selling?
7.20Backhaus Beer Brewers (BBB) just announced that the current fiscal year’s net income was $1.2 million. BBB’s marginal tax rate is 40 per- cent, its interest expense for the year was $1.5 million, it has $8 million of invested capi- tal, and its average cost of funds was 10 percent. What is BBB’s economic value added (EVA) for the current year?
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