Xiao and Shiao Jing-jian, newlyweds from Laramie, Wyoming, have decided to begin investing for the future. Xiao is a 7-Eleven store manager, and Shiao is a high-school math teacher. The couple intends to take $4,000 out of their savings for investment purposes and then continue to invest an additional $200 to $400 per month. Both have a moderate investment philosophy and seek some cash dividends as well as price appreciation.Calculate the five-year return on the investment choices in the table below. Running Paws Eagle Packaging Current price$22.80 $60.00 Current earnings per share (EPS)$1.90 $2.40 Current quarterly cash dividend$0.16 $0.20 Current P/E ratio12 25 Projected earnings annual growth rate25%25%Projected cash dividend growth rate5%5%(Hint: When making your calculations you should assume at the end of the first year. At the end of the first year the EPS for Running Paws will be $2.38 with a dividend of $0.67, and the EPS for Eagle Packaging will be $3.00 with a projected dividend of $0.84.) Using the appropriate P/E ratios, what are the estimated market prices of the Running Paws and Eagle Packaging stocks after five years? Do not round intermediate calculations. Round your answers to the nearest cent. Running PawsEagle PackagingEstimated market price$ $ Show your calculations in determining the projected price appreciations for the two stocks over the five years. Round your answers and intermediate calculations to the nearest cent. The price appreciation for Running Paws would be$ -Select-minusplusItem 4 $ = $ The price appreciation for Eagle Packaging would be$ -Select-minusplusItem 8 $ = $ Add the projected price appreciation of each stock to its projected cash dividends, and show the total five-year percentage returns for the two stocks. Round your answers to the nearest whole number. Running PawsEagle PackagingTotal five-year percentage return % %Determine the average annual dividend for each stock, and use these figures in calculating the approximate compound yields for each. Round your answers for average annual dividend to the nearest cent and answers for compound yield to two decimal places. Running PawsEagle PackagingAverage annual dividend$ $ Compound yield % %Assume that the beta is 2.5 for Running Paws and 2.7 for Eagle Packaging. If the market went up by 17 percent during the year, what would be the likely stock prices for Running Paws and Eagle Packaging? Round your answers to the nearest cent. Running PawsEagle PackagingStock price$ $ Assume that inflation is approximately 4 percent and the return on high-quality, long-term, corporate bonds is 8 percent. Given the Jing-jians' investment philosophy, explain which investment alternative you would recommend: (1) Running Paws, (2) Eagle Packaging, or (3) a high-quality, long-term corporate bond, or (4) other growth investment. Support your answer by calculating the potential rate of return using the provided information or by using the Garman/Forgue website. The Jing-jians are in the 25 percent marginal tax bracket. Round your answers to two decimal places. Running PawsEagle PackagingBondGrowth return % % %After-tax return % % %Potential rate of return % % %Jing-jians should choose -Select-Corporate bondEagle PackagingRunning PawsOther growth investmentItem 28 .Check My Work

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Xiao and Shiao Jing-jian, newlyweds from Laramie, Wyoming, have decided to begin investing for the future. Xiao is a 7-Eleven store manager, and Shiao is a high-school math teacher. The couple intends to take $4,000 out of their savings for investment purposes and then continue to invest an additional $200 to $400 per month. Both have a moderate investment philosophy and seek some cash dividends as well as price appreciation. Calculate the five-year return on the investment choices in the table below. Running Paws Eagle Packaging Current price $22.80 $60.00 Current earnings per share (EPS) $1.90 $2.40 Current quarterly cash dividend $0.16 $0.20 Current P/E ratio 12 25 Projected earnings annual growth rate 25 % 25 % Projected cash dividend growth rate 5 % 5 % (Hint: When making your calculations you should assume at the end of the first year. At the end of the first year the EPS for Running Paws will be $2.38 with a dividend of $0.67, and the EPS for Eagle Packaging will be $3.00 with a projected dividend of $0.84.) Using the appropriate P/E ratios, what are the estimated market prices of the Running Paws and Eagle Packaging stocks after five years? Do not round intermediate calculations. Round your answers to the nearest cent. Running Paws Eagle Packaging Estimated market price $ $

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter15: Mutual And Exchange Traded Funds

Section: Chapter Questions

Problem 1FPC

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Xiao and Shiao Jing-jian, newlyweds from Laramie, Wyoming, have decided to begin investing for the future. Xiao is a 7-Eleven store manager, and Shiao is a high-school math teacher. The couple intends to take $4,000 out of their savings for investment purposes and then continue to invest an additional $200 to $400 per month. Both have a moderate investment philosophy and seek some cash dividends as well as price appreciation.

Calculate the five-year return on the investment choices in the table below.

	Running Paws		Eagle Packaging
Current price	$22.80		$60.00
Current earnings per share (EPS)	$1.90		$2.40
Current quarterly cash dividend	$0.16		$0.20
Current P/E ratio	12		25
Projected earnings annual growth rate	25	%	25	%
Projected cash dividend growth rate	5	%	5	%

(Hint: When making your calculations you should assume at the end of the first year. At the end of the first year the EPS for Running Paws will be $2.38 with a dividend of $0.67, and the EPS for Eagle Packaging will be $3.00 with a projected dividend of $0.84.)

Using the appropriate P/E ratios, what are the estimated market prices of the Running Paws and Eagle Packaging stocks after five years? Do not round intermediate calculations. Round your answers to the nearest cent.

Running Paws Eagle Packaging

Estimated market price $ $
Show your calculations in determining the projected price appreciations for the two stocks over the five years. Round your answers and intermediate calculations to the nearest cent. The price appreciation for Running Paws would be
$ -Select-minusplusItem 4 $ = $

The price appreciation for Eagle Packaging would be

$ -Select-minusplusItem 8 $ = $
Add the projected price appreciation of each stock to its projected cash dividends, and show the total five-year percentage returns for the two stocks. Round your answers to the nearest whole number.

Running Paws Eagle Packaging

Total five-year percentage return % %
Determine the average annual dividend for each stock, and use these figures in calculating the approximate compound yields for each. Round your answers for average annual dividend to the nearest cent and answers for compound yield to two decimal places.

Running Paws Eagle Packaging

Average annual dividend $ $

Compound yield % %
Assume that the beta is 2.5 for Running Paws and 2.7 for Eagle Packaging. If the market went up by 17 percent during the year, what would be the likely stock prices for Running Paws and Eagle Packaging? Round your answers to the nearest cent.

Running Paws Eagle Packaging

Stock price $ $
Assume that inflation is approximately 4 percent and the return on high-quality, long-term, corporate bonds is 8 percent. Given the Jing-jians' investment philosophy, explain which investment alternative you would recommend: (1) Running Paws, (2) Eagle Packaging, or (3) a high-quality, long-term corporate bond, or (4) other growth investment. Support your answer by calculating the potential rate of return using the provided information or by using the Garman/Forgue website. The Jing-jians are in the 25 percent marginal tax bracket. Round your answers to two decimal places.

Running Paws Eagle Packaging Bond

Growth return % % %

After-tax return % % %

Potential rate of return % % %

Jing-jians should choose -Select-Corporate bondEagle PackagingRunning PawsOther growth investmentItem 28 .

Check My Work

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