Jumbo Transport, an Air-Cargo Company, Expects to Have Earnings Per

question 46

Multiple Choice

Jumbo Transport, an air-cargo company, expects to have earnings per share of $2.50 in the coming year. It decides to retain 20% of these earnings in order to lease new aircraft. The return on this investment will be 25%. If its equity cost of capital is 12%, what is the expected share price of Jumbo Transport?

• A)$28.57
• B)$19.23
• C)$16.67
• D)$24.75

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