Exam 9: Stock Valuation

What would be the maximum an investor should pay for the common stock of a firm that has no growth opportunities but pays a dividend of $1.36 per year? The required rate of return is 12.5 percent.

Supplemental liquidity providers (SLPs):

The common stock of Fine China sells for $38.42 a share.The stock is expected to pay an annual dividend of $1.80 next year and increase that amount by 4 percent annually thereafter.What is the market rate of return on this stock?

If a stock pays a constant annual dividend then the stock can be valued using the:

A stock's PE ratio is primarily affected by which three factors?

L&R's stock is currently valued at $32.70 a share.The firm had earnings per share of $1.88 last year and projects earnings of $2.10 a share for next year.What is the forward price-earnings ratio?

Allison's is expected to have annual free cash flow of $62,000,$65,400,and $68,900 for the next three years,respectively.After that,the free cash flow is expected to increase at a constant rate of 2 percent per year.At a discount rate of 14.5 percent,what is the present value of this firm?

How much are you willing to pay for one share of stock if the company just paid an annual dividend of $1.03,the dividends increase by 3 percent annually,and you require a rate of return of 15 percent?

Merriweather's has a policy of increasing its annual dividend by 1.75 percent each year.How much will one share be worth five years from now if the required rate of return is 15 percent and the next dividend will be $3.40?

The dividend yield on Alpha's common stock is 5.2 percent.The company just paid a $2.10 dividend.The rumour is that the dividend will be $2.30 next year.The dividend growth rate is expected to remain constant at the current level.What is the required rate of return on Alpha's stock?

A forward PE is generally based on the projected:

Dexter's has a fixed dividend payout ratio of 40 percent,current net income of $5,200,total assets of $56,400,and total equity of $21,600.Given this information,what estimate would you use as the dividend growth rate if the last dividend paid was $.464 per share?

Kurt's Interiors has annual revenue of $506,000 with costs of $369,400.Depreciation is $64,900 and the tax rate is 21 percent.The firm has debt outstanding with a market value of $240,000 along with 7,500 shares of stock that is valued at $87 a share.The firm has $51,200 of cash,all of which is needed to run the business.What is the firm's EV/EBITDA ratio?

Latcher's is a relatively new firm that is still in a period of rapid development.The company plans on retaining all of its earnings for the next six years.Seven years from now,the company projects paying an annual dividend of $.25 a share and then increasing that amount by 3 percent annually thereafter.To value this stock as of today,you would most likely determine the value of the stock ________ years from today before determining today's value.

What are the components of the required rate of return on a share of stock? Briefly explain each component.

The Elder Co.is in downsizing mode.The company paid an annual dividend of $2.50 last year.The company has announced plans to lower the dividend by $.50 a year.Once the dividend amount becomes zero,the company will cease all dividends permanently.The required rate of return is 14.5 percent.What is one share of this stock worth?

A limit order to buy:

Unique Stores common stock pays a constant annual dividend of $1.75 a share.What is the value of this stock at a discount rate of 13.25 percent?

You recently contacted a brokerage firm and purchased 100 shares of stock.The brokerage firm acquired the shares for you by making a deal with a floor broker who represented one of the stock issuer's shareholders.Given this,you know your purchase:

Russell's has annual revenue of $387,000 with costs of $216,400.Depreciation is $48,900 and the tax rate is 21 percent.The firm has debt outstanding with a market value of $182,000 along with 9,500 shares of stock that is selling at $67 a share.The firm has $48,000 of cash of which $29,500 is needed to run the business.What is the firm's EV/EBITDA ratio?