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Chris Norton Is A Young Hollywood Writer Who Is Well
Chris Norton Is A Young Hollywood Writer Who Is Well
Chris Norton Is A Young Hollywood Writer Who Is Well
well
Chris Norton is a young Hollywood writer who is well on his way to television superstardom.
After writing several successful television specials, he was recently named the head writer for
one of TV’s top-rated sitcoms. Chris fully realizes that his business is a fickle one and, on the
advice of his dad and manager, has decided to set up an investment program. Chris will earn
about a half-million dollars this year. Because of his age, income level, and desire to get as big
a bang as possible from his investment dollars, he has decided to invest in speculative, high-
growth stocks.
Chris is currently working with a respected Beverly Hills broker and is in the process of
building up a diversified portfolio of speculative stocks. The broker recently sent him information
on a hot new issue. She advised Chris to study the numbers and, if he likes them, to buy as
many as 1,000 shares of the stock. Among other things, corporate sales for the next 3 years
have been forecasted as follows:
($ in millions)
1 ..... 22.5
2 ..... 35.0
3 ...... 50.0
The firm has 2.5 million shares of common stock outstanding. They are currently being traded at
$70 a share and pay no dividends. The company has a net profit rate of 20%, and its stock has
been trading at a P/E of around 40 times earnings. All these operating characteristics are
expected to hold in the future.
Questions
1. Compute the company’s net profits and EPS for each of the next 3 years.
3. Assuming that all expectations hold up and that Chris buys the stock at $70, determine his
expected return on this investment.
1. What do you think of his investment program? What do you see as its strengths and
weaknesses?
3. Do you think Chris should consider adding foreign stocks to his portfolio? Explain.
ANSWER
https://solvedquest.com/chris-norton-is-a-young-hollywood-writer-who-is-well/