Exam 18: Equity Valuation Models

Fly Boy Corporation is expected have EBIT of $800k this year.Fly Boy Corporation is in the 30% tax bracket, will report $52,000 in depreciation, will make $86,000 in capital expenditures, and will have a $16,000 increase in net working capital this year.What is Fly Boy's FCFF

Earnings management is

You wish to earn a return of 11% on each of two stocks, C and D.Stock C is expected to pay a dividend of $3 in the upcoming year while stock D 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 C

Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year.Dividends are expected to grow at the rate of 6% per year.The risk-free rate of return is 5% and the expected return on the market portfolio is 13%.The stock of Torque Corporation has a beta of 1.2. What is the intrinsic value of Torque's stock

_________ is equal to (common shareholders' equity/common shares outstanding).

SI International had a FCFE of $122.1M last year and has 12.43M shares outstanding.SI's required return on equity is 11.3% and WACC is 9.8%.If FCFE is expected to grow at 7.0% forever, the intrinsic value of SI's shares are

A preferred stock will pay a dividend of $7.50 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.

A company paid a dividend last year of $1.75.The expected ROE for next year is 14.5%.An appropriate required return on the stock is 10%.If the firm has a plowback ratio of 75%, the dividend in the coming year should be

Who popularized the dividend discount model, which is sometimes referred to by his name

An analyst has determined that the intrinsic value of HPQ stock is $20 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 25, then it would be reasonable to assume the expected EPS of HPQ in the coming year is

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

Goodie Corporation produces goods that are very mature in their product life cycles.Goodie Corporation is expected to have per share FCFE in year 1 of $2.00, per share FCFE of $1.50 in year 2, and per share FCFE of $1.00 in year 3.After year 3, per share FCFE is 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

An analyst has determined that the intrinsic value of IBM stock is $80 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 22, then it would be reasonable to assume the expected EPS of IBM in the coming year is

Lamm Corporation is expected have EBIT of $6.2M this year.Lamm Corporation is in the 40% tax bracket, will report $1.2M in depreciation, will make $1.4M in capital expenditures, and will have a $160,000 increase in net working capital this year.What is Lamm's FCFF

The most popular approach to forecasting the overall stock market is to use

Low Tech Company has an expected ROE of 10%.The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends.

The dividend discount model

For most firms, P/E ratios and risk

Risk Metrics Company is expected to pay a dividend of $3.50 in the coming year.Dividends are expected to grow at a rate of 10% per year.The risk-free rate of return is 5% and the expected return on the market portfolio is 13%.The stock is trading in the market today at a price of $90.00. What is the approximate beta of Risk Metrics's stock

A preferred stock will pay a dividend of $3.00 in the upcoming year and every year thereafter; i.e., dividends are not expected to grow.You require a return of 9% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.