Alexas Corporation Reports the Following -Analysts' Expected Earnings for Alexas for Next Two Years Are

question 61

Multiple Choice

Alexas Corporation reports the following:
$$\begin{array} { l l } & \mathbf { 2 0 0 5 } \\\text { Earnings per share } & \$ 1.80 \\\text { Dividends per share } & \$ 0.72 \\\text { Book value per share- at the end of the } &\$ 8.62\\\text { year } & \end{array}$$
-Analysts' expected earnings for Alexas for next two years are:

2006: $2.00
2007: $2.23

Cost of equity is 15%. Return on equity is expected to equal cost of equity from 2008 onwards. Dividend payout ratio is expected to remain the same for 2006 and 2007. Price per share at the end of 2005 would be closest to:

• A)$9.45.
• B)$9.81.
• C)$9.89.
• D)Not determinable

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Definitions:

Signaling Effect

The signaling effect is a theory in finance suggesting that the actions of a company, such as dividend announcements or share buybacks, send signals to the market about its future prospects.

Dividend Policy

A company's approach to distributing profits to its shareholders, determining how much to pay out in dividends and how often.

Investor Confidence

The degree of faith that investors have in the stability and profitability of the financial markets, influencing their willingness to invest.

Clientele Effect

A theory suggesting that the stock price movements are influenced by the preferences of a company's current shareholder base.