BÀI TẬP CHAPTER 9

Họ và tên MSSV % Đóng góp

Tạ Thị Thanh Dung 31221025211 100%

Phạm Hữu Khánh Huyền 31221025133 100%

Nguyễn Lâm Huyền Trân 31221026171 100%

Nguyễn Xuân Khánh 31221022180 100%

Nguyễn Lê Mai Khanh 31221026503 100%

N1 - Xuân Khánh

1. Stock Values The Nearside Co. just paid a dividend of $2.07 per share on its stock. The
dividends are expected to grow at a constant rate of 4.3 percent per year, indefinitely. If
investors require a return of 11 percent on the stock, what is the current price? What will
the price be in 3 years? In 15 years?

Div: $2.07
g: 4.3%
R: 11%
1/ The current price:
First, we calculate D1: D1 = D0 * (1+g) = 2.07 * ( 1+ 0.043 ) = $2.16
Now, we calculate P1: P1 = D1/ (R - g) = 2.16 / (0.11 - 0.043) = $32.24
So, the current price of the stock is $32.24
2/ Price in 3 years:
We calculate D3: D3 = D0 * (1+g)^3 = 2.07 * ( 1+ 0.043 )^3 = $2.35
Then, calculate P3: P3 = D3/ (R - g) = 2.35 / (0.11 - 0.043) = $35.07
So, the price of the stock in 3 years is expected to be $35.07.
3/ Price in 15 years:
We calculate D15: D15 = D0 * (1+g)^15 = 2.07 * ( 1+ 0.043 )^15 = $3.89
Then, calculate P15: P15 = D15/ (R - g) = 3.89 / (0.11 - 0.043) = $58.06
So, the price of the stock in 15 years is expected to be $58.06

5. Stock Valuation Change, Inc., is expected to maintain a constant 4.9 percent growth rate
in its dividends, indefinitely. If the company has a dividend yield of 5.2 percent, what is
the required return on the company’s stock?
Dividend yield = Div/P0 = 5.2%
Dividend growth rate: g= 4.9%
→ Required return = Div/P0 + g = 5.2 + 4.9 = 10.1%
So, the required return on the company’s stock is 10.1%

27. Stock Valuation and EV FFDP Corp. has yearly sales of $48 million and costs of $15
million. The company’s balance sheet shows debt of $64 million and cash of $23 million.
There are 1.95 million shares outstanding and the industry EV/EBITDA multiple is 6.4.
What is the company’s enterprise value? What is the stock price per share?

_ Given:
+ Sales: $48 million
+ Costs: $15 million
+ Debt: $64 million
+ Cash: $23 milion
+ Outstanding Shares: 1.95 million
+ Industry EV/EBITDA Multiple: 6.4
_ The company’s enterprise value:
EBITDA = Sales - Costs = 48 - 15 = $33 million
→ EV = EBITDA * Industry EV/EBITDA Multiple = $33 million * 6.4 = $211.2 billion
_ Stock price per share
The stock price per share is calculated by dividing the equity value (EV minus debt plus
cash) by the number of outstanding shares:
+ Equity Value = EV - Debt + Cash
+ Equity Value = $211.2 billion - $64 million + $23 million = $168.4 billion
+ Stock Price per Share = Equity Value / Outstanding Shares
+ Stock Price per Share = $168.4 billion / 1.95 million shares = $87.28

N2 - Huyền Trân

3. Stock Values For the company in the previous problem, what is the dividend yield? What
is the expected capital gains yield?
- The dividend yield is the dividend next year divided by the current price, so the dividend
yield is:
Dividend yield = Div1/Po
- The capital gains yield, or percentage increase in the stock price, is the same as the dividend
growth rate, so:
Capital gains yield = g
9. Growth Rate The newspaper reported last week that Bennington Enterprises earned
$17.5 million this year. The report also stated that the firm’s return on equity is 13 per-
cent. The firm retains 80 percent of its earnings. What is the firm’s earnings growth rate?
What will next year’s earnings be?
ROE = 13%
b = 80%
=> g = b x ROE = 80% x 13% = 10,4%
Next year earning = 17,5(1+10,4%) = $19,32 million

19. Valuing Preferred Stock Fifth National Bank just issued some new preferred stock. The
issue will pay an annual dividend of $4 in perpetuity, beginning five years from now. If
the market requires a return of 4.3 percent on this investment, how much does a share
of preferred stock cost today?
The present value of a perpetuity:
Div = $4
R = 4,3%
=> P0= Div/R =$ 4/4,3% = $93,02
N3 - Mai Khanh
2. Stock Values The next dividend payment by Skippy, Inc., will be $2.95 per share. The
dividends are anticipated to maintain a growth rate of 4.8 percent, forever. If the stock
currently sells for $53.10 per share, what is the required return?

P0 = $53.10
D1 = $2.95
G = 4.8 %
We need to find the required return of the stock. Using the constant growth model,
we can solve the equation for R. Doing so, we find:
R = (D1/P0) + g
R = (2.95/53.10) + 4.8 %
R = 0.1036 or 10.36%

6. Stock Valuation Suppose you know that a company’s stock currently sells for $74 per share and
the required return on the stock is 9.9 percent. You also know that the total return on the stock is
evenly divided between a capital gains yield and a dividend yield.
If it’s the company’s policy to maintain a constant growth rate in its dividends, what is the current
dividend per share?

We know the stock has a required return of 9.9 percent, and the dividend and capital gains
yield are equal, so:
Dividend yield = 1/2(0.099) = 0.0495 = Capital gains yield
The dividend is the stock price times the dividend yield, so:
D1 = 0.0495x($74) = $3.66
The relationship between the dividend this year and the dividend next year:
D1 = D0(1 + g)
We can solve for the dividend that was just paid:
$3.66 = D0(1 + 0.0495)
D0 = $3.66/1.0495
D0 = $3.49

14. Nonconstant Dividends Upton Corporation is expected to pay the following dividends
over the next four years: $9, $7, $5.75, and $2.55. Afterwards, the company pledges to
maintain a constant 4.5 percent growth rate in dividends forever. If the required return
on the stock is 10 percent, what is the current share price?

P4 = D4(1 + g)/(R – g) = $2.55x(1+0.045)/(0.10 – 0.045)

P4 = $48.45
The price of the stock today is the PV of the first four dividends, plus the PV of the
Year 4 stock price. So, the price of the stock today will be:
P0 = $9/1.10 + $7/1.10^2 + $5.75/1.10^3 + ($2.55 + 48.45)/1.10^4
P0 = $53.12

N4 - Khánh Huyền

4. Stock Values Saine Corporation will pay a $3.25 per share dividend next year. The company
pledges to increase its dividend by 5 percent per year, indefinitely. If you require a return of
10.5 percent on your investment, how much will you pay for the company’s stock today?

Using the constant growth model, we find the price of the stock today is:
P0 = D1 / (R – g) = $3.25 / (10.5% - 5%) = $59.1

8. Valuing Preferred Stock Meteora, Inc., has an issue of preferred stock outstanding that pays a
$3.75 dividend every year, in perpetuity. If this issue currently sells for $81 per share, what is the
required return?

The price of a share of preferred stock is the dividend divided by the required return. This is the
same equation as the constant growth model, with a dividend growth rate of zero percent.
Remember that most preferred stock pays a fixed dividend, so the growth rate is zero. Using this
equation, we find the price per share of the preferred stock is:
R = D / P0 = $3.75 / $81 = 4.63%

15. Differential Growth Fuji Co. is growing quickly. Dividends are expected to grow at a rate
of 20 percent for the next three years, with the growth rate falling off to a constant 5 percent
thereafter. If the required return is 11 percent and the company just paid a dividend of $3.24, what is
the current share price?

D1​=D0​×(1+g1​) = 3.24×(1+0.20) = 3.24×1.20 = 3.888

D2=D1×(1+g1) = 3.888×(1+0.20) = 3.888×1.20 = 4.6656

D3=D2×(1+g1) = 6656×(1+0.20) = 4.6656×1.20 = 5.59872

D4=D3×(1+g2) = 5.59872×(1+0.05) = 5.59872×1.05 = 5.87868

P3​= D4/r-g2 = 5.87868/0.11-0.05 = 5.87868/0.06 = 97.978

Calculate the Present Value of Dividends and Price:

PVdividends=D1(1+r)^1+D2(1+r)^2+D3(1+r)^3

PVdividends= 3.888(1+0.11)^1 + 4.6656(1+0.11^)2 + 5.59872(1+0.11)^3

PVdividends=3.888/1.11 + 6656/1.2321 + 5.59872/1.36763

PVdividends=3.504 +3.787 + 4.097= 11.388

PVP3​​= P3/(1+r)^3= 97.978/ 1.36763 = 71.73

Current Price=11.388 + 71.73 = 83.12P5 ​= 93.02

N5 - Thanh Dung

24. Dividend Growth Four years ago, Bling Diamond, Inc., paid a dividend of $1.65 per share. The
company paid a dividend of $2.10 per share yesterday. Dividends will grow over the next five years
at the same rate they grew over the last four years. Thereafter, dividends will grow at 5 percent per
year. What will the company’s dividend be in seven years?

D0=D4/(1+r)^4

=> r= 6,21%

D5= D0*(1+r)^5 = $2,838

D7= D5*(1+g)^2= $3,129

28. Stock Valuation and Cash Flows Full Boat Manufacturing has projected sales of $115 million
next year. Costs are expected to be $67 million and net investment is expected to be $12 million.
Each of these values is expected to grow at 14 percent the following year, with the growth rate
 declining by 2 percent per year until the growth rate reaches 6 percent, where it is expected to
remain indefinitely. There are 5.5 million shares of stock outstanding and investors require a return
of 13 percent on the company’s stock. The corporate tax rate is 21 percent.
a. What is your estimate of the current stock price?
b. Suppose instead that you estimate the terminal value of the company using a PE multiple. The
industry PE multiple is 11. What is your new estimate of the company’s stock price?

a. the cash flows for each year is:

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Sales 115.0 131.1 146.8 161.5 174.4 184.9

Cost 67.0 76.4 85.5 94.1 101.6 107.7

EBT 48.0 54.7 61.3 67.4 72.8 77.2

Taxes 10.1 11.5 12.9 14.2 15.3 16.2

et Income 37.9 43.2 48.4 53.3 57.5 61.0

nvestment 12.0 13.7 15.3 16.9 18.2 19.3

Cash flow 25.9 29.5 33.1 36.4 39.3 41.7

To find the terminal value of the company in Year 6, we can discount the Year 7 cash
flows as a growing perpetuity, which will be:

Terminal value = $41.7x(1+0.06) / (13% - 6%) = $631.5 million

Company value today = 25.9 / 1.13 + 29.5 / 1.13^2 + 33.1 / 1.13^3+36.4 / 1.13^4 +
39.3 / 1.13^5 + 41.7 / 1.13^6 + 631.5 / 1.13^6 = $436 million

Share price = 436 / 5.5 = $79.3 per share

b.

Use the PE multiple to find the terminal value. All of the cash flows from part a will
remain the same. So, the terminal value in Year 6 is:

Terminal value = 11x61 = $671 million

Company value. today = 25.9 / 1.13 + 29.5 / 1.13^2 + 33.1 / 1.13^3+36.4 / 1.13^4 +
39.3 / 1.13^5 + 41.7 / 1.13^6 + 671 / 1.13^6 = 455

Share price = 4555.5 = $82.7 per share