## Investments Analysis and Management Study Set 2

Business

## Quiz 10 :

Common Stock Valuation

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Q02 Q02 Q02

Janice is evaluating a stock that currently pays a dividend of $0.25 per share. She expects this level of dividend to continue indefinitely, and she has determined that 5% is the appropriate required return for the stock. What is the most she should pay for the stock?

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Multiple Choice

C

Q08 Q08 Q08

Sam is evaluating a stock that is expected to pay a $1.25 per share dividend at the beginning of next year. He expects the dividend to grow by 10% per year and has determined that 12% is an appropriate required return for the stock. What is the highest amount he should pay for the stock?

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Multiple Choice

Q14 Q14 Q14

Hannett Inc. has a stock price of $40 and just reported earnings of $3 per share. The firm maintains a constant dividend payout of 65% and has an expected return on equity (ROE) of 16%. Based on the constant growth model, Hannett's expected return is closest to:

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Multiple Choice

Q28 Q28 Q28

Rita has calculated the discounted value of the free cash flows to the firm (FCFFs) for a company that has no preferred stock. What additional adjustment(s) does she have to make to her calculated discounted value to derive an estimate of the firm's stock price?

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Multiple Choice

Q45 Q45 Q45

As an electric utility, Arbot Industries is expected to maintain a constant dividend payout ratio and constant growth rate of earnings for the foreseeable future. Earnings were $4.50 per share in the recently completed fiscal year. In recent years, the dividend payout ratio has been a constant 65% and is expected to remain so. Arbot's return on equity (ROE) is expected to be 14% in future years. Assume your required return on the stock is 8.5%. Based on the constant growth model, what is Arbot's intrinsic value?

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Q46 Q46 Q46

SRD Corporation's stock is currently selling at $36 per share. SRD reported total revenues of $5.26 billion over the past year, has a book value of equity of $2.9 billion, and has 296 million shares outstanding. Based on comparable firms, the appropriate P/S and P/B for SRD are 2.85 and 4.75, respectively.
A. What is the stock's approximate intrinsic value based on the P/S multiplier?

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Q47 Q47 Q47

Next year's expected EPS for Swanti Industries is $5 and the firm has a 60% payout ratio. Swanti's stock has a beta of 1.1, a required return of 10% and is selling at $120. Find Swanti's present value of growth opportunities (PVGO) and the percent PVGO is of Swanti's current price.

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Q48 Q48 Q48

The YTC Corporation just paid an annual dividend of $1.50. Harry expects the dividends of the YTC Corporation to grow at 12% for the next four years and at 7% thereafter. The beta of YTC is 1.25 and Harry considers the market risk premium to be 4.2%. A five-year, zero-coupon Treasury bond is yielding 4.01%. What value should Harry place on the stock?

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Q49 Q49 Q49

Weldon Corp. is in the expansion stage of its life cycle and just paid its first dividend of $2 per share. An analyst forecasts that the dividend will grow at 16% in the near term but will decline linearly to 6% long-term growth over the next 10 years. The analyst believes the required return on Weldon's stock is 9%. Based on the analysts estimates and using the H-model, determine Weldon's intrinsic value.

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Q50 Q50 Q50

The Huskie Corporation's stock paid a $3.85 dividend ten years ago and just paid a $7.75 dividend this year. Assume you expect the dividend to grow at this same rate into the future and your required return on the stock is 12.5%. What value should you place on the stock?

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Q51 Q51 Q51

THC Inc. just paid a $1.60 per share dividend. Clarice projects that THC's dividend will grow at the following rates over the next three years: 16%, 12% and 8%, respectively. Clarice expects the dividend to grow at 5% thereafter. If Clarice has a 9.5% required return on the stock, what value should she place on the stock now?

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Q52 Q52 Q52

Helen plans to purchase a stock that is currently paying no dividend. Helen expects the stock to pay its first dividend of $5.00 per share in eight years. Furthermore, she expects the firm to have an ROE of 16% and a dividend payout ratio of 60% thereafter. What value should Helen place on the stock now if her required return on the stock is 8.75%?

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Q53 Q53 Q53

In the past year, CRA Corp. paid a $2.50 per share dividend. The annual dividends are projected to be $4.00, $5.00, and $6.00 over the next 3 years, respectively. The dividend is expected to grow at 5% following the $6 dividend. Assuming the required return on the stock is 9.5%, what is the estimated stock value?

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