Exam 18: Equity Valuation Models

Boaters World is expected to have per share FCFE in year 1 of $1.65, per share FCFE in year 2 of $1.97, and per share FCFE in year 3 of $2.54.After year 3, per share FCFE is expected to grow at the rate of 8% per year.An appropriate required return for the stock is 11%.The stock should be worth _______ today.

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $0.75 in dividends and $16 from the sale of the stock at the end of the year.The maximum price you would pay for the stock today is _____ if you wanted to earn a 12% return.

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has

The dividend discount model

Paper Express Company has a balance sheet which lists $85 million in assets, $40 million in liabilities, and $45 million in common shareholders' equity.It has 1,400,000 common shares outstanding.The replacement cost of the assets is $115 million.The market share price is $90. What is Paper Express's book value per share?

The growth in dividends of Music Doctors, Inc.is expected to be 8% per year for the next two years, followed by a growth rate of 4% per year for three years.After this five-year period, the growth in dividends is expected to be 3% per year, indefinitely.The required rate of return on Music Doctors, Inc.is 11%.Last year's dividends per share were $2.75.What should the stock sell for today?