Exam 8: Valuing Stockspart

Value of Future Cash Flows A firm recently paid a $1.00 annual dividend.The dividend is expected to increase by 10 percent in each of the next four years.In the fourth year,the stock price is expected to be $100.If the required rate for this stock is 14 percent,what is its value?

P/E Model and Cash Flow Valuation Suppose that a firm's recent earnings per share and dividends per share are $3.00 and $1.50,respectively.Both are expected to grow at 10 percent.However,the firm's current P/E ratio of 20 seems high for this growth rate.The P/E ratio is expected to fall to 16 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.

What are the differences between common stock and preferred stock?

Financial analysts forecast ABC Inc.growth for the future to be 12 percent.ABC's recent dividend was $1.60.What is the value of ABC stock when the required return is 15 percent?

All of the following are stock market indices EXCEPT:

Buying Stock with a Market Order You would like to buy shares of International Business Machines (IBM).The current bid and ask quotes are $96.17 and $96.24,respectively.You place a market buy-order for 100 shares that executes at these quoted prices.How much money did it cost to buy these shares?

Which of the following is incorrect with respect to limit orders?

Value of Dividends and Future Price A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year.Financial analysts believe the stock will be at their target price of $75.00 in two years.Compute the value of this stock with a required return of 10 percent.

Stock valuation model dynamics make clear that lower discount rates lead to:

We often use the P/E ratio model with the firm's growth rate to estimate:

Investors buy stock at the:

Selling Stock with Commissions At your full-service brokerage firm,it costs $110 per stock trade.How much money do you receive after selling 100 shares of Time Warner,Inc.(TMX),which trades at $22.62?

When might the constant growth model not be used?

A firm has been losing sales due to technological obsolescence.It projects growth for the future to be -3 percent.Its recent dividend was $2.50.What is the value of this stock when the required return is 7 percent?

Explain the characteristics of preferred stock.

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

Coca-Cola recently paid a $3.00 dividend.Investors expect a 12 percent return on this stock.What is the percentage change in price if Coca-Cola is expected to grow at 7 percent versus 8 percent?

To list a stock on the NYSE,a company must meet minimum requirements that include all of the following EXCEPT:

Sally has researched GLE and wants to pay no more than $50 for the stock.Currently,GLE is trading in the market for $54.Sally would be best served to:

Dividend Initiation and Stock Value A firm does not pay a dividend.It is expected to pay its first dividend of $0.15 per share in three years.This dividend will grow at 9 percent indefinitely.Using a 10 percent discount rate,compute the value of this stock.