Exam 18: Equity Valuation Models

Boaters World is expected to have per share FCFE in year 1 of $1.65, per share FCFE in year 2 of $1.97, and per share FCFE in year 3 of $2.54.After year 3, per share FCFE is expected to grow at the rate of 8% per year.An appropriate required return for the stock is 11%.The stock should be worth _______ today.

According to James Tobin, the long run value of Tobin's Q should tend toward

Think Tank Company has an expected ROE of 26%.The dividend growth rate will be _______ if the firm follows a policy of plowing back 90% of earnings.

A preferred stock will pay a dividend of $2.75 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.

Discuss the relationships between the required rate of return on a stock, the firm's return on equity, the plowback rate, the growth rate, and the value of the firm.

Suppose that the average P/E multiple in the oil industry is 16.Shell Oil is expected to have an EPS of $4.50 in the coming year.The intrinsic value of Shell Oil stock should be

Antiquated Products Corporation produces goods that are very mature in their product life cycles.Antiquated Products Corporation is expected to pay a dividend in year 1 of $1.00, a dividend of $0.90 in year 2, and a dividend of $0.85 in year 3.After year 3, dividends are expected to decline at a rate of 2% per year.An appropriate required rate of return for the stock is 8%.The stock should be worth

Rome Corporation is expected have EBIT of $2.3M this year.Rome Corporation is in the 30% tax bracket, will report $175,000 in depreciation, will make $175,000 in capital expenditures, and will have no change in net working capital this year.What is Rome's FCFF

Mature Products Corporation produces goods that are very mature in their product life cycles.Mature Products Corporation is expected to pay a dividend in year 1 of $2.00, a dividend of $1.50 in year 2, and a dividend of $1.00 in year 3.After year 3, dividends are expected to decline at a rate of 1% per year.An appropriate required rate of return for the stock is 10%.The stock should be worth

SGA Consulting had a FCFE of $3.2M last year and has 3.2M shares outstanding.SGA's required return on equity is 13% and WACC is 11.5%.If FCFE is expected to grow at 8.5% forever, the intrinsic value of SGA's shares are

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has

The growth in per share FCFE of FOX, 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 per share FCFE is expected to be 3% per year, indefinitely.The required rate of return on FOX, Inc.is 13%.Last year's per share FCFE was $1.85.What should the stock sell for today

The growth in dividends of Music Doctors, Inc.is expected to be 8% per year for the next two years, followed by a growth rate of 4% per year for three years; after this five-year period, the growth in dividends is expected to be 3% per year, indefinitely.The required rate of return on Music Doctors, Inc.is 11%.Last year's dividends per share were $2.75.What should the stock sell for today

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 projected free cash flow of F&G Manufacturing Company for the coming year is

Suppose that the average P/E multiple in the gas industry is 17.KMP is expected to have an EPS of $5.50 in the coming year.The intrinsic value of KMP stock should be

Since 1955, Treasury bond yields and earnings yields on stocks were

Old Style Corporation produces goods that are very mature in their product life cycles.Old Style Corporation is expected to have per share FCFE in year 1 of $1.00, per share FCFE of $0.90 in year 2, and per share FCFE of $0.85 in year 3.After year 3, per share FCFE is expected to decline at a rate of 2% per year.An appropriate required rate of return for the stock is 8%.The stock should be worth

The most appropriate discount rate to use when applying a FCFE valuation model is the

_______ is the amount of money per common share that could be realized by breaking up the firm, selling the assets, repaying the debt, and distributing the remainder to shareholders.

Dividend discount models and P/E ratios are used by __________ to try to find mispriced securities.