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Exercises Stocks Valuation

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ELISHA OCAMPO
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28 views10 pages

Exercises Stocks Valuation

Uploaded by

ELISHA OCAMPO
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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EXERCISES:

STOCKS VALUATION
A stock is expected to pay a dividend of $0.75 at the
end of the year. The required rate of return is r s =
10.5%, and the expected constant growth rate is g =
6.4%. What is the stock's current price?
a. $17.39
D1 $0.75
b. $17.84 rs 10.5%
c. $18.29 g 6.4%
d. $18.75 P0 = D1/(rs − g) $18.29

e. $19.22
A stock just paid a dividend of D 0 = $1.50. The
required rate of return is r s = 10.1%, and the constant
growth rate is g = 4.0%. What is the current stock
price?
a. $23.11
D0 $1.50
b. $23.70 rs 10.1%
g 4.0%
c. $24.31 D1 = D0(1 + g) = $1.56
d. $24.93 P0 = D1/(rs − g) $25.57

e. $25.57
Reddick Enterprises' stock currently sells for $35.50
per share. The dividend is projected to increase at a
constant rate of 5.50% per year. The required rate of
return on the stock, r s , is 9.00%. What is the stock's
expected price 3 years from today?
a. $37.86
Stock price $35.50
b. $38.83 Growth rate 5.50%
Years in the future 3
c. $39.83 P3 = P0(1 + g)3 = $41.69
d. $40.85
e. $41.69
Whited Inc.'s stock currently sells for $35.25 per
share. The dividend is projected to increase at a
constant rate of 4.75% per year. The required rate of
return on the stock, r s , is 11.50%. What is the stock's
expected price 5 years from now?
a. $40.17
Growth rate 4.75%
b. $41.20 Years in the future 5
Stock price $35.25
c. $42.26 P5 = P0(1 + g)5 = $44.46
d. $43.34
e. $44.46
The Ramirez Company's last dividend was $1.75. Its
dividend growth rate is expected to be constant at
25% for 2 years, after which dividends are expected to
grow at a rate of 6% forever. Its required return (r s ) is
12%. What is the best estimate of the current stock
price?
a. $41 .58
b. $42.64
c. $43.71
d. $44.80
e. $45.92
Ackert Company's last dividend was $1.55. The
dividend growth rate is expected to be constant at
1.5% for 2 years, after which dividends are expected
to grow at a rate of 8.0% forever. The firm's required
return (r s ) is 12.0%. What is the best estimate of the
current stock price?
a. $37.05
b. $38.16
c. $39.30
d. $40.48
e. $41.70
Mooradian Corporation’s free cash flow during the
just-ended year (t = 0) was $150 million, and its FCF is
expected to grow at a constant rate of 5.0% in the
future. If the weighted average cost of capital is
12.5%, what is the firm’s total corporate value, in
millions?
a. $1,895 FCF0 $150
b. $1,995 g 5.0%
WACC 12.5%
c. $2,100 FCF1 = FCF0(1 + g) = $157.50
d. $2,205 Total corporate value = FCF1/(WACC – g) = $2,100.00

e. $2,315
Suppose Boyson Corporation’s projected free cash flow
for next year is FCF 1 = $150,000, and FCF is expected
to grow at a constant rate of 6.5%. If the company’s
weighted average cost of capital is 11.5%, what is the
firm’s total corporate value?
a. $2,572,125 FCF $150,000
1
b. $2,707,500 g 6.50%
WACC 11.50%
c. $2,850,000 Total corporate value = FCF1/(WACC – g) = $3,000,000
d. $3,000,000
e. $3,150,000
You must estimate the intrinsic value of Noe Technologies’ stock . The
end-of-year free cash flow (FCF 1 ) is expected to be $27.50 million, and
it is expected to grow at a constant rate of 7.0% a year thereafter.
The company’s WACC is 10.0%, it has $125.0 million of long-term
debt plus preferred stock outstanding, and there are 15.0 million
shares of common stock outstanding. What is the firm's estimated
intrinsic value per share of common stock?
a. $48.64
b. $50.67
c. $52.78
d. $54.89
e. $57.08

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