Exam 10: Common Stock Valuation

In the past year, CRA Corp. paid a $2.50 per share dividend. The annual dividends are projected to be $4.00, $5.00, and $6.00 over the next 3 years, respectively. The dividend is expected to grow at 5% following the $6 dividend. Assuming the required return on the stock is 9.5%, what is the estimated stock value?

Economic value added (EVA) indicates the amount by which a company's operating profit exceeds its cost of capital.

THC Inc. just paid a $1.60 per share dividend. Clarice projects that THC's dividend will grow at the following rates over the next three years: 16%, 12% and 8%, respectively. Clarice expects the dividend to grow at 5% thereafter. If Clarice has a 9.5% required return on the stock, what value should she place on the stock now?

Which of the following is not a term used to describe the denominator in the discounted cash flow model?

Which factor is least likely to explain why a company has a higher P/E than another?

The estimated EPS and dividend per share (DPS) for Herker Corp. next year are $4 and $2, respectively. Herker's stock price is $92 and analysts estimate Herker's required return at 8%. What is the present value of growth opportunities (PVGO) for Herker?

Stan expects Terta Corp. to pay its first dividend of $3 in five years. He expects the dividend to grow at 6% thereafter, and his required return on the stock is 9.5%. The largest amount that Stan should pay for the stock is closest to:

Riza Corporation's preferred stock has a par value of $100 and a dividend rate of 6%. If the required return on the stock is 8%, its intrinsic value is closest to:

Which measure relies on the cash flow remaining after capital expenditures and after interest and principal repayments on debt have been made?

SRD Corporation's stock is currently selling at $36 per share. SRD reported total revenues of $5.26 billion over the past year, has a book value of equity of $2.9 billion, and has 296 million shares outstanding. Based on comparable firms, the appropriate P/S and P/B for SRD are 2.85 and 4.75, respectively. A. What is the stock's approximate intrinsic value based on the P/S multiplier? B. What is the stock’s approximate intrinsic value based on the P/B multiplier?

For a profitable firm, its forward P/E generally exceeds its trailing P/E.

Stephen used the dividend discount model to determine that the price of a stock should be $23.50. Stephen checks on the internet and finds the latest price quoted for the stock is $27.00. What should he do?

Sam is evaluating a stock that is expected to pay a $1.25 per share dividend at the beginning of next year. He expects the dividend to grow by 10% per year and has determined that 12% is an appropriate required return for the stock. What is the highest amount he should pay for the stock?