Blue Company has 12,000,000 in sales. COGS are 40% of sales. Operating costs are $1,200,000plus depreciation expense of $80,000 and interest expense $80,000. Tax rate is 40%. They have 1,000,000 shares of stock outstanding.

a. What is their net income?

b. If they retained 80% and paid 20% in dividends, what is their dividend payout?

c. If they had EPS of $2.40 last year, how does this year’s EPS compare to last year’s?

Stock F’s last dividend was $1.60 per share and is expected to grow at a rate of 4%.

a. Using constant growth valuation formula, what is the expected price of the stock if my required return is 12%?

b. If the stock is selling at $23.50 should I purchase the stock?