Business, 01.08.2020 01:01 adrian128383

Your PE firm is considering acquiring a publicly traded digital advertising company, Star Dust Enterprises (SDE). The following are some key statistics of the stock of SDE today (t = 0). SDE is 100% equity financed. Its cost of capital (apply this to all cash flows) is 11.2% and the payout ratio is 79.0%. Expected earnings per share of SDE at next year (t = 1) are $6.6. Assume that without new investments, expected earnings of SDE would remain at their time-1 level in perpetuity. All future investments are expected to generate $0.2 in incremental earnings for each $1 of investment. For an investment made at time t, incremental cash flows are generated starting in year t + 1. A) Compute expected dividend per share of SDE next year (t = 1).
B) Compute expected dividend per share of SDE two years from now (t = 2).
C) What is the present value of growth opportunities (PVGO) of SDE today?

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