a. What is the firm’s current book value per share?
b. What is the firm’s current P/E ratio?
c. (1) What is the current required return for Reedy stock (use CAPM)?
(2) What will be the new required return for Reedy stock assuming that they expand into Canadian, Mexican and other state markets as planned (use CAPM)?
d. If the securities analysts are correct and there is no growth in future dividends, what will be the value per share of the Reedy stock? (Note: use the new required return on the company’s stock here)
e. (1) If Mathew Reedy’s predictions are correct, what will be the value per share of Reedy’s stock if the firm maintains a constant annual 9.5% growth rate in future dividends? (Note: Continue to use the new required return here.)
(2) If Mathew Reedy’s predictions are correct, what will be the value per share of Reedy’s stock if the firm maintains a constant annual 13% growth rate in dividends per share over the next 2 years and 9.5% thereafter? (Note: Use the new required return here.)
f. Compare the current (2016) price of the stock and the stock values found in parts a, d, and e. Discuss why these values may differ. Which valuation method do you believe most clearly represents the true value of the Reedy’s stock?
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