Exam 18: Option Valuation

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $3.50 in dividends and $42 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 10% return.

Many stock analysts assume that a mispriced stock will

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

Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25. -The market's required rate of return on Sure's stock is _____.

Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25. -If Sure's intrinsic value is $21.00 today,what must be its growth rate?

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 ____________.

Low Tech Chip Company is expected to have EPS of $2.50 in the coming year .The expected ROE is 14%.An appropriate required return on the stock is 11%.If the firm has a dividend payout ratio of 40%,the intrinsic value of the stock should be

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 have a $160,000 increase in net working capital this year.What is Lamm's FCFF?

A firm has a return on equity of 14% and a dividend payout ratio of 60%.The firm's anticipated growth rate is _________.

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.

High Tech Chip Company is expected to have EPS in the coming year of $2.50.The expected ROE is 12.5%.An appropriate required return on the stock is 11%.If the firm has a plowback ratio of 70%,the growth rate of dividends should be

Fools Gold Mining Company is expected to pay a dividend of $8 in the upcoming year.Dividends are expected to decline at the rate of 2% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Fools Gold Mining Company has a beta of -0.25.The return you should require on the stock is ________.

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.

Which of the following is the best measure of the floor for a stock price?

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?

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 ______.

The _________ is the fraction of earnings reinvested in the firm.

Smart Draw Company is expected to have per share FCFE in year 1 of $1.20,per share FCFE in year 2 of $1.50,and per share FCFE in year 3 of $2.00.After year 3,per share FCFE is expected to grow at the rate of 10% per year.An appropriate required return for the stock is 14%.The stock should be worth _______ today.

The market capitalization rate on the stock of Flexsteel Company is 12%.The expected ROE is 13% and the expected EPS are $3.60.If the firm's plowback ratio is 75%,the P/E ratio will be ________.

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 return you should require on Torque's stock?