Exam 18: Equity Valuation Models

Confusion Corp is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Analysts expect the price of Confusion Corp shares to be $22 a year from now. The beta of Confusion Corp's stock is 1.25. What is the intrinsic value of Confusion's stock today?

A preferred stock will pay a dividend of $7.50 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

Goodie Corporation produces goods that are very mature in their product life cycles. Goodie Corporation is expected to have per share FCFE in year 1 of $2.00, per share FCFE of $1.50 in year 2, and per share FCFE of $1.00 in year 3. After year 3, per share FCFE is expected to decline at a rate of 1% per year. An appropriate required rate of return for the stock is 10%. The first three dividends are worth _______ today.

A preferred stock will pay a dividend of $1.25 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow. You require a return of 12% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

The _________ is the fraction of earnings reinvested in the firm.

Salted Chips Company paid a dividend last year of $2.50. The expected ROE for next year is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 60%, the dividend in the coming year should be

The goal of fundamental analysts is to find securities

Salted Chips Company is expected to have EPS in the coming year of $2.50. The expected ROE is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 70%, the growth rate of dividends should be

Melody Corp has an expected ROE of 14%. The dividend growth rate will be ________ if the firm follows a policy of paying 60% of earnings in the form of dividends.

Siri had a FCFE of $1.6M last year and has 3.2M shares outstanding. Siri's required return on equity is 12%, and WACC is 9.8%. If FCFE is expected to grow at 9% forever, the intrinsic value of Siri's shares is

Smart Draw Company is expected to have per share FCFE in year 1 of $1.20, per share FCFE in year 2 of $1.50, and per share FCFE in year 3 of $2.00. After year 3, per share FCFE is expected to grow at the rate of 10% per year. An appropriate required return for the stock is 14%. The first three dividends are worth _______ today.

No Fly Airlines is expected to pay a dividend of $7 in the coming year. Dividends are expected to grow at the rate of 15% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of No Fly Airlines has a beta of 3.00. The intrinsic value of the stock is

Lamm Corporation is expected have EBIT of $6.2M this year. Lamm Corporation is in the 40% tax bracket, will report $1.2M in depreciation, will make $1.4M in capital expenditures, and will have a $160,000 increase in net working capital this year. What is Lamm's FCFF?

A company paid a dividend last year of $1.75. The expected ROE for next year is 14.5%. An appropriate required return on the stock is 10%. If the firm has a plowback ratio of 75%, the dividend in the coming year should be

Slow Silver Scuba Corp is expected to pay a dividend of $8 in the upcoming year. Dividends are expected to decline at the rate of 2% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Slow Silver Scuba Corp has a beta of −0.25. The return you should require on the stock is

Historically, P/E ratios have tended to be

You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock C and 10% for stock D. The intrinsic value of stock C

In a multi stage growth model, the majority of the value can be found in the ______________.

High present value of growth opportunities most likely will correspond with _______________.

The Wrench Company is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of the Wrench Company has a beta of 1.2. What is the intrinsic value of The Wrench's stock?