Exam 8: Valuing Stocks

Stock valuation model dynamics make clear that higher growth rates lead to

JUJU's dividend next year is expected to be $1.50. It is trading at $45 and is expected to grow at 9% per year. What is JUJU's dividend yield and capital gain?

Dividend Growth Annual dividends of Pfizer, Inc. (PFE) grew from $0.38 in 2000 to $1.15 in 2007. What was the annual growth rate?

We often use the P/E ratio model with the firm's growth rate to estimate

Expected Return American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The dividend is expected to grow at a 15.5 percent rate. At the current stock price of $24.07, what is the return shareholders are expecting?

When residual cash flows are high, stock values will be

Coca-Cola recently paid a $3.00 dividend. Investors expect a 12% return on this stock. What is the difference in price if Coca-Cola is expected to grow at 6% versus 8%?

Explain how important a firm's growth is by creating an example of a growth and no-growth stock.

Suppose that a firm's recent earnings per share and dividend per share are $2.50 and $1.00, respectively. Both are expected to grow at 5 percent. However, the firm's current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 within five years. Compute a value for this stock. Assume a 10 percent required rate.

Buying Stock with Commission At your discount brokerage firm, it costs $8.50 per stock trade. How much money do you need to buy 200 shares of Apple (AAPL), which trades at $171.54?

P/E Ratio Model and Future Price Walmart (WMT) recently earned a profit of $3.13 per share and has a P/E ratio of 14.22. The dividend has been growing at a 12.5 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 10 in five years.

P/E Ratio Model and Future Price Target Corp (TGT) recently earned a profit of $3.57 earnings per share and has a P/E ratio of 17.3. The dividend has been growing at a 14 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 23 in five years.

At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 200 shares of General Electric (GE), which trades at $45.19?

Stock valuation model dynamics make clear that lower discount rates lead to

Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay its first dividend of $0.15 per share in 3 years. This dividend will grow at 9 percent indefinitely. Using a 10 percent discount rate, compute the value of this stock.

Changes in Growth and Stock Valuation Consider a firm that had been priced using a 10 percent growth rate and a 14 percent required rate. The firm recently paid a $1.00 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12 percent rate. How much should the stock price change (in dollars and percentage)?

At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you receive after selling 250 shares of General Electric (GE), which trades at $55.19?

Constant Growth Stock Valuation Target Corp (TGT) paid a $0.21 dividend per share in 2000, which grew to $0.52 in 2007. This growth is expected to continue. What is the value of this stock at the beginning of 2007 when the required rate of return is 14.77 percent?

Ultra Petroleum (UPL) has earnings per share of $1.75 and P/E of 42.56. What is the stock price?

These investors earn returns from receiving dividends and from stock price appreciation.