Exam 13: Equity Valuation

Next year's earnings are estimated to be $6.00.The company plans to reinvest 33% of its earnings at 12%.If the cost of equity is 8%,what is the present value of growth opportunities?

Generally speaking the higher a firm's ROA the _________ the dividend payout ratio and the _________ the firm's growth rate of earnings.

Which one of the following statements about market and book value is correct?

What is the present value of growth opportunities for ART?

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2.00,a dividend in year 2 of $3.00,and a dividend in year 3 of $4.00.After year 3,dividends are expected to grow at the rate of 7% per year.An appropriate required return for the stock is 12%.Using the multistage DDM,the stock should be worth __________ today.

Flanders,Inc.has expected earnings of $4 per share for next year.The firm's ROE is 8% and its earnings retention ratio is 40%.If the firm's market capitalization rate is 15%,what is the present value of its growth opportunities?

Next year's earnings are estimated to be $5.00.The company plans to reinvest 20% of its earnings at 15%.If the cost of equity is 9%,what is the present value of growth opportunities?

The free cash flow to the firm is reported as $405 million.The interest expense to the firm is $76 million.If the tax rate is 35% and the net debt of the firm increased by $50,what is the free cash flow to the equity holders of the firm?

Ace Frisbee Corporation produces a good that is very mature in their product life cycles.Ace Frisbee Corporation is expected to pay a dividend in year 1 of $3.00,a dividend in year 2 of $2.00,and a dividend in year 3 of $1.00.After year 3,dividends are expected to decline at the rate of 2% per year.An appropriate required return for the stock is 8%.Using the multistage DDM,the stock should be worth __________ today.

A stock is priced at $45 per share.The stock has earnings per share of $3.00 and a market capitalization rate of 14%.What is the stock's PVGO?

Which one of the following is equal to the ratio of common shareholders' equity to common shares outstanding?

Caribou Gold Mining Corporation is expected to pay a dividend of $6 in the upcoming year.Dividends are expected to decline at the rate of 3% per year.The risk-free rate of return is 5% and the expected return on the market portfolio is 13%.The stock of Caribou Gold Mining Corporation has a beta of -0.50.Using the constant growth DDM,the intrinsic value of the stock is _________.

Westsyde Tool Company is expected to pay a dividend of $2.00 in the upcoming year.The risk-free rate of return is 6% and the expected return on the market portfolio is 12%.Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now.The beta of Westsyde Tool Company's stock is 1.20.Using a one-period valuation model,the intrinsic value of Westsyde Tool Company stock today is _________.

A firm has PVGO of 0 and a market capitalization rate of 12%.What is the firm's P/E ratio?

Brevik Builders has an expected ROE of 25%.Its dividend growth rate will be __________ if it follows a policy of paying 30% of earning in the form of dividends.

Everything equal,which variable is negatively related to intrinsic value of a company?

Estimates of a stock's intrinsic value calculated with the free cash flow methodology depends most critically on _______.

A firm increases its dividend plowback ratio.All else equal you know that _____________.

A firm is expected to produce earnings next year of $3.00 per share.It plans to reinvest 25% of its earnings at 20%.If the cost of equity if 11%,what should be the value of the stock?

In what industry are investors likely to use the dividend discount model and arrive at a price close to the observed market price?