An investor estimates that next year’s sales for New World Products should amount to about $75 million. The company has 2.5 million shares outstanding, gener- ates a net profit margin of about 5% , and has a payout ratio of 50% . All figures are expected to hold for next year. Given this information, compute the following.

a.Estimated net earnings for next year.
b.Next year’s dividends per share.
c.The expected price of the stock (assuming the P/E ratio is 24.5 times earnings).
d.The expected holding period return (latest stock price: $25/share)

To compute the values requested, we will use the information provided step by step.

a. Estimated net earnings for next year:
Net earnings can be calculated as the product of sales, net profit margin, and (1 - payout ratio).
Net Profit = Sales x Net Profit Margin x (1 - Payout Ratio)
Net Profit = $75 million x 5% x (1 - 50%)
Net Profit = $75 million x 0.05 x 0.5
Net Profit = $1.875 million

Therefore, the estimated net earnings for next year are $1.875 million.

b. Next year's dividends per share:
Dividends per share can be calculated by dividing the estimated net earnings by the number of shares outstanding and the payout ratio.
Dividends per Share = (Net Earnings / Number of Shares) x Payout Ratio
Dividends per Share = ($1.875 million / 2.5 million shares) x 50%
Dividends per Share = $0.75

Therefore, the next year's dividends per share are $0.75.

c. Expected price of the stock:
The expected price of the stock can be calculated by multiplying the expected earnings per share by the P/E ratio.
Expected Stock Price = Expected Earnings per Share x P/E Ratio
Expected Stock Price = (Net Earnings / Number of Shares) x P/E Ratio
Expected Stock Price = ($1.875 million / 2.5 million shares) x 24.5
Expected Stock Price = $18.6

Therefore, the expected price of the stock is $18.6.

d. Expected holding period return:
The expected holding period return can be calculated using the formula:
Expected Holding Period Return = (Ending Price - Initial Price + Dividends) / Initial Price

The initial price is given as $25/share.
Ending Price (expected stock price) is $18.6/share.
Dividends per share are $0.75/share.

Expected Holding Period Return = ($18.6 - $25 + $0.75) / $25
Expected Holding Period Return = -$5.65 / $25
Expected Holding Period Return = -22.6%

Therefore, the expected holding period return is -22.6%.