Exam 9: Valuing Stocks

Rearden Metals expects to have earnings this coming year of $2.50 per share.Rearden plans to retain all of its earnings for the next year.For the subsequent three years,the firm will retain 50% of its earnings.It will ten retain 25% of its earnings from that point onward.Each year,retained earnings will be invested in new projects with an expected return of 20% per year.Any earnings that are not retained will be paid out as dividends.Assume Rearden's shares outstanding remains constant and all earnings growth comes from the investment of retained earnings.If Rearden's equity cost of capital is 10%,then Rearden's stock price is closest to:

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. Nielson Motors has a share price of $50.00.Its dividend was $2.50,and you expect Nielson Motors to raise its dividend by approximately 6% per year in perpetuity. -If Nielson's equity cost of capital is 13%,then Nielson's expected share price is closest to:

The Sisyphean Company's common stock is currently trading for $25.00 per share.The stock is expected to pay a $2.50 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 14%.If the dividend payout rate is expected to remain constant,then the expected growth rate in the Sisyphean Company's earnings is closest to:

Use the information for the question(s)below. Von Bora Corporation is expected pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%. -The price you would be willing to pay today for a share of Von Bora stock,if you plan to hold the stock for two years is closest to:

Which of the following is NOT a way that a firm can increase its dividend?

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. Rearden Metals has a current stock price of $30 share,is expected to pay a dividend of $1.20 in one year,and its expected price right after paying that dividend is $33. -Rearden's expected capital gains yield is closest to:

Use the following information to answer the question(s)below. Wyatt Oil,an all-equity financed firm,has just reported EPS of $4.00 per share.Despite an economic downturn,Wyatt is confident regarding its current investment opportunities,but due to the current financial crisis,Wyatt does not wish to fund these investments externally.Wyatt's board has therefore decided to suspend its stock repurchase plan and cut its dividend to $1 per share (from its current level of $2 per share)and retain these funds instead.The firm just paid its current dividend of $1.00 per share and expects to keep its dividend at $1 per share next year as well.In subsequent years,it expects its growth opportunities to slow,and it will still be able to fund its growth internally with a target 40% dividend payout ratio,and reinitiating its stock repurchase plan for a total payout rate of 60%.All dividends and repurchases occur at the end of each year. Wyatt's existing operations are expected to generate the current level of earnings per share in the future.Assume that the return on new investments is 16% and that reinvestments will account for all future earnings growth.Wyatt's current equity cost of capital is 12%. -Wyatt's current stock price is closest to:

Use the following information to answer the question(s)below. Rearden Metals has a current stock price of $30 share,is expected to pay a dividend of $1.20 in one year,and its expected price right after paying that dividend is $33. -Rearden's expected dividend yield is closest to:

Use the information for the question(s)below. You expect CCM Corporation to generate the following free cash flows over the next five years: Following year five,you estimate that CCM's free cash flows will grow at 5% per year and that CCM's weighted average cost of capital is 13%. -If CCM has $200 million of debt and 8 million shares of stock outstanding,then the share price for CCM is closest to:

Which of the following statements is FALSE?

Use the information for the question(s)below. Von Bora Corporation is expected pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%. -Suppose you plan to hold Von Bora stock for one year.The price one would expect to be able to sell a share of Von Bora stock for in one year is closest to:

Vacinox is a biotechnology firm that is about to announce the results of its clinical trials of a potential new vaccine.If the trials are successful,Vacinox stock will be worth $80 per share.However,if the trials are not successful,then Vacinox stock will only be worth $12 per share.If on the morning that the announcement is scheduled,Vacinox stock is trading for $60.96,then the probability that investors place on the trials being successful are closest to:

Because of a catastrophic plane crash,the FAA announced that it is withdrawing its air worthiness certification for Fly by Night Aviation's (FBNA)new four seat private plane.As a result FBNA's future expected free cash flows will decline by $40 million a year for the next eight years.FBNA has 20 million shares outstanding,no debt,and an equity cost of capital of 12%.If this news is a complete surprise to investors,then the amount that FBNA's stock price should fall upon the announcement is closest to:

Use the following information to answer the question(s)below. -Assuming that Novartis AG (NVS)has an EPS of $3.35,based upon the price-to-book ratios for its competitors,the lowest expected stock price for Novartis is closest to: