This document provides 7 stock valuation problems involving calculating stock prices given information about expected dividends, dividend growth rates, required rates of return, and other financial metrics. The problems require using models like the dividend discount model, FCFE valuation approach, and WACC to determine the intrinsic value per share.
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This document provides 7 stock valuation problems involving calculating stock prices given information about expected dividends, dividend growth rates, required rates of return, and other financial metrics. The problems require using models like the dividend discount model, FCFE valuation approach, and WACC to determine the intrinsic value per share.
This document provides 7 stock valuation problems involving calculating stock prices given information about expected dividends, dividend growth rates, required rates of return, and other financial metrics. The problems require using models like the dividend discount model, FCFE valuation approach, and WACC to determine the intrinsic value per share.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online from Scribd
This document provides 7 stock valuation problems involving calculating stock prices given information about expected dividends, dividend growth rates, required rates of return, and other financial metrics. The problems require using models like the dividend discount model, FCFE valuation approach, and WACC to determine the intrinsic value per share.
Copyright:
Attribution Non-Commercial (BY-NC)
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Download as DOCX, PDF, TXT or read online from Scribd
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Stock Valuation Problems FIN 461 Dr.
Liebenberg
1. Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year. The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock is 15%. What is the stocks value per share? 2. Hart Enterprises recently paid a dividend of $1.25. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firms required return is 10%. What is the firms intrinsic value today? 3. Smith Technologies is expected to generate $150 million in free cash flow next year, and FCF is expected to grow at a constant rate of 5% per year indefinitely. Smith has no debt or preferred stock, and its WACC is 10%. If Smith has 50 million shares of stock outstanding, what is the stocks value per share? 4. Fee Founders has perpetual preferred stock outstanding that sells for $60 a share and pays a dividend of $5 at the end of each year. What is the required rate of return? 5. You are considering an investment in Keller Corporations stock, which is expected to pay a dividend of $2 a share at the end of the year and has a beta of 0.9. The risk-free rate is 5.6%, and the market risk premium is 6%. If the dividends are expected to grow at a rate of 3% indefinitely, what is the firms intrinsic value today? 6. Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.00 coming 3 years from today. The dividend should grow rapidly- at a rate of 50% per year- during years 4 and 5, but after year 5 growth should be a constant 8% per year. If the required return on Microtech is 15%, what is the value of the stock today? 7. Assume that today is December 31, 2009, and the following information applies to Vermeil Airlines: - After-tax operating income, also called NOPAT for 2010 is expected to be $500 million. - The depreciation expense for 2010 is expected to be $100 million. - The capital expenditures for 2010 are expected to be $200 million. - No change is expected in net operating working capital. - The free cash flow is expected to grow at a constant rate of 6% per year. - The required return on equity is 14%. - The WACC is 10%. - The market value of the companys debt is $3 billion. - 200 million shares of stock are outstanding. Using the free cash flow approach, what should the companys stock price be today?
