Assets and Liabilities at the End of 2005 for Tripod

question 3

Essay

Assets and liabilities at the end of 2005 for Tripod Inc. are $4,970 and $2,220 respectively. Net income and dividends for fiscal 2005 were $500 and $200, respectively. Tripod has 100 shares outstanding as of 12/31/05.Net income is expected to grow at 10% for the next three years (2006-2008). The dividend payout ratio is expected to remain at 2005 level for next three years. After 2005 abnormal earnings are expected to be zero. Cost of debt is 8% and cost of equity is 15%.What would you be prepared to pay per share for Tripod stock at the end of fiscal 2005, using the accounting based equity valuation formula?

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Definitions:

Retained

Often used in financial contexts to describe profits kept in a company rather than distributed to shareholders; can also refer to information or items kept or preserved.

Interaction Term

A variable in a statistical model that captures the effect of two or more variables acting together on a dependent variable.

First-order Model

A mathematical or statistical model that represents systems or processes using first-degree equations or relationships.

Significance Level

The probability of rejecting the null hypothesis when it is actually true, often denoted by alpha.