Exam 7: Valuing Stocks

Matilda Industries pays a dividend of $2.25 per share and is expected to pay this amount indefinitely.If Matilda's equity cost of capital is 12%,which of the following would be expected to be closest to Matilda's stock price?

Use the information for the question(s)below. Gonzales Corporation generated free cash flow of $88 million this year.For the next two years,the company's free cash flow is expected to grow at a rate of 8%.After that time,the company's free cash flow is expected to level off to the industry long-term growth rate of 4% per year.Suppose the weighted average cost of capital is 10% and Gonzales Corporation has cash of $100 million,debt of $300 million,and 100 million shares outstanding. -What is Gonzales Corporation's expected terminal enterprise value in year 2?

Danforth Corp has a current stock price of $117.15 and is expected to pay a dividend of $4.50 in one year.If Danforth's equity cost of capital is 10%,what price would Danforth's stock be expected to sell for immediately after it pays the dividend?

If a manager wishes to raise his stock's price,he should do which of the following? I.Focus on maximizing the present value (PV)of the free cash flow.

If you value a stock using a range of stock valuation methods and these valuations indicate a stock price that is greater than its actual market price,it is most likely that the stock is under-valued.

Jessie Inc.is expected to pay an annual dividend of $1.10 per share in the coming year,and to trade for $53.45 at the end of the year.If investments with the same risk as Jessie's stock have an expected return of 7.5%,what is Jessie's dividend yield?

Shield Security pays annual dividends and has just paid this year's dividend of $1.20.If its equity cost of capital is 10%,and dividends are expected to grow by 5% per year in the future,what is the value of Shield's stock?

Stocks that do not pay a dividend must have a value of $0.

Why is the disposition effect costly from a tax perspective?

Sinclair ^{Pharmaceuticals},a small drug company,develops a vaccine that will protect against Helicobacter pylori,a bacteria that is the cause of a number of diseases of the stomach.It is expected that Sinclair ^{Pharmaceuticals} will experience extremely high growth over the next three years and will reinvest all of its earnings in expanding the company over this time.Earnings were $1.20 per share before the development of the vaccine and are expected to grow by 40% per year for the next three years.After this time,it is expected growth will drop to 5% and stay there for the expected future.Four years from now Sinclair will pay dividends that are 75% of its earnings.If its equity cost of capital is 10%,what is the value of a share of Sinclair ^{Pharmaceuticals today?}

Use the table for the question(s)below. -The table above shows the stock prices and multiples for a number of firms in the newspaper publishing industry.Another newspaper publishing firm (not shown)had sales of $620 million,EBITDA of $84 million,excess cash of $66 million,$14 million of debt,and 120 million shares outstanding.If the average enterprise value to sales for comparable businesses is used,which of the following is the best estimate of the firm's share price?

Chittenden Enterprises has 632 million shares outstanding.It expects earnings at the end of the year to be $940 million.The firm's equity cost of capital is 10%.Chittenden pays out 30% of its earnings in total: 20% paid out as dividends and 10% used to repurchase shares.If Chittenden's earnings are expected to grow at a constant 4% per year,what is Chittenden's share price?

If a firm has leverage,it is best to use the total payout model to determine the firm's value.

Valuation models use the relationship between share value,future cash flows,and the cost of capital to estimate these quantities for a given firm.Realistically,for a publicly traded firm,what can we reliably use such models to determine? I.the firm's future cash flows

Canberra Corp expects to have earnings per share of $8.40 in the coming year.Canberra has a return on new investment of 14%.If the firm's dividend payout rate is 75%,and its equity cost of capital is 9%,what is the value of Canberra's stock?

Cook Pharmaceuticals plans to pay $1.55 per share in dividends in the coming year.If its equity cost of capital is 8%,and dividends are expected to grow by 3% per year in the future,what is the value of Cook's stock?

Use the figure for the question(s)below. -On a particular date,the above information concerning Office Depot,Incorporated,was given on Google Finance.Its competitor,Staples Incorporated,had a stock price of $24.72.Which of the following is closest to the EPS of Staples Incorporated if it is estimated using valuation multiples based on price-earnings ratios?

Jumbo Transport,an air-cargo company,expects to have earnings per share of $2.50 in the coming year.It decides to retain 20% of these earnings in order to lease new aircraft.The return on this investment will be 25%.If its equity cost of capital is 12%,what is the expected share price of Jumbo Transport?

Garville Corporation has a current stock price of $7.43 and is expected to sell for $8.14 in one year's time,immediately after it pays a dividend of $0.35.Which of the following is closest to Garville's equity cost of capital?

Which of the following is the appropriate way to calculate the price of a share of a given company using the free cash flow valuation model?