Exam 18: Equity Valuation Models

Sunshine Corporation is expected to pay a dividend of $1.50 in the upcoming year.Dividends are expected to grow at the rate of 6% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Sunshine Corporation has a beta of 0.75.The intrinsic value of the stock is

High Speed Company has an expected ROE of 15%.The dividend growth rate will be ________ if the firm follows a policy of paying 50% of earnings in the form of dividends.

You wish to earn a return of 13% on each of two stocks, X and Y.Stock X is expected to pay a dividend of $3 in the upcoming year while stock Y is expected to pay a dividend of $4 in the upcoming year.The expected growth rate of dividends for both stocks is 7%.The intrinsic value of stock X

________ is equal to the total market value of the firm's common stock divided by (the replacement cost of the firm's assets less liabilities).

Suppose that the average P/E multiple in the oil industry is 22.Exxon is expected to have an EPS of $1.50 in the coming year.The intrinsic value of Exxon stock should be

Music Doctors Company 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.

In the dividend discount model, which of the following are not incorporated into the discount rate

Suppose that the average P/E multiple in the oil industry is 20.Dominion Oil is expected to have an EPS of $3.00 in the coming year.The intrinsic value of Dominion Oil stock should be

Investors want high plowback ratios

High P/E ratios tend to indicate that a company will _______, ceteris paribus.

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $2.50 in dividends and $28 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 15% return.

Highpoint had a FCFE of $246M last year and has 123M shares outstanding.Highpoint's required return on equity is 10% and WACC is 9%.If FCFE is expected to grow at 8.0% forever, the intrinsic value of Highpoint's shares are

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 market value per share

Xlink Company has an expected ROE of 15%.The dividend growth rate will be _______ if the firm follows a policy of plowing back 75% of earnings.

A preferred stock will pay a dividend of $6.00 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.

The growth in dividends of ABC, Inc.is expected to be 15% per year for the next three years, followed by a growth rate of 8% per year for two years; after this five-year period, the growth in dividends is expected to be 3% per year, indefinitely.The required rate of return on ABC, Inc.is 13%.Last year's dividends per share were $1.85.What should the stock sell for today

An analyst has determined that the intrinsic value of Dell stock is $34 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 27, then it would be reasonable to assume the expected EPS of Dell in the coming year will be

One of the problems with attempting to forecast stock market values is that

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

Consider the free cash flow approach to stock valuation.F&G Manufacturing Company is expected to have before-tax cash flow from operations of $750,000 in the coming year.The firm's corporate tax rate is 40%.It is expected that $250,000 of operating cash flow will be invested in new fixed assets.Depreciation for the year will be $125,000.After the coming year, cash flows are expected to grow at 7% per year.The appropriate market capitalization rate for unleveraged cash flow is 13% per year.The firm has no outstanding debt.The total value of the equity of F&G Manufacturing Company should be