You Expect That Bean Enterprises Will Have Earnings Per Share

question 32

Multiple Choice

You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean's equity cost of capital is 10%, then the price of a share of Bean's stock is closest to ________.

• A) $24.82
• B) $16.54
• C) $41.36
• D) $66.18

Interpret the effects of beneficial and adverse supply shocks on the economy.

Evaluate the impact of changes in capital stock on an economy's production capacity.

Identify the factors leading to movements along and shifts of the long-run aggregate supply curve.

Understand the basics of stock valuation and the constant growth model.

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Definitions:

Consolidated Balance Sheet

A financial statement that presents the assets, liabilities, and shareholders' equity of a parent company and its subsidiaries as a single entity.

Consolidated Retained Earnings

The portion of earnings not distributed as dividends to shareholders and consolidated from both the parent company and its subsidiaries.

Shareholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing the ownership interest of shareholders.

Subsidiary's Shareholders' Equity

The net assets attributable to the shareholders of a subsidiary, consisting of share capital plus retained earnings.