Exam 8: Valuing Stocks

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)?

A stock recently paid a dividend of $2.5 per share. Its growth rate is expected to be 8 percent. Investors require a 10 percent return. The stock is selling in the market for $150. What is this stock worth and is the stock undervalued or overvalued?

Which of the following is incorrect with respect to preferred stock?

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?

A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10 percent in each of the next three years. In the third year, the stock price is expected to be $110. If the required return is 15 percent, what is its value?

As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?

GEN has 3 million shares outstanding and a P/E ratio of 15. Its earnings per share is $3.00. What is GEN's market capitalization?

Suppose that a firm's recent earnings per share and dividends per share are $2.50 and $1.00, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 22 seems high for this growth rate. The P/E ratio is expected to fall to 18 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.

Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?

A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the preferred stock is 9.3 percent, what is the value of the stock?

A firm does not pay a dividend. It is expected to pay its first dividend of $1.00 per share in two years. This dividend will grow at 5 percent indefinitely. Using a 12 percent discount rate, compute the value of this stock.

The Dow Jones Industrial Average (DJIA) includes

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

A stock is expected to pay a $1.00 dividend per share. The growth rate is expected to be 4 percent. If investors demand 10 percent on this stock, what is the expected price of the stock 10 years from now?

Which of these are valued as a special zero-growth case of the constant growth rate model?

Investors buy stock at the

Studies of investor psychology have discovered that

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?

Why is the ask price higher than the bid price?

You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $25.43 and $25.45, respectively. You place a market buy-order for 150 shares that executes at these quoted prices. How much money did it cost to buy these shares?