Exam 9: Valuing Stocks

Wyatt Oil just reported that a major fire destroyed one of its oil production facilities in Colorado.While the facility was fully insured,the loss of oil production will decrease Wyatt's free cash flow by $120 million at the end of this year and by $80 million at the end of next year.Wyatt has 50 million shares outstanding and has a weighted average cost of capital of 9%.Assuming the value of Wyatt's debt is not affected by this event,the expected decrease in Wyatt's stock price is closest to:

Use the information for the question(s)below. Von Bora Corporation is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%. -Suppose you plan to hold Von Bora stock for only one year.Your capital gain from holding Von Bora stock for the first year is closest to:

Which of the following statements is FALSE?

Use the information for the question(s)below. In a surprise announcement,NASA released details of a major contract with Lockheed-Martin (LMT)that would increase LMT's market value by $7.5 billion.It was widely expected by the market that this contract would be awarded to LMT's major competitor Boeing (BA).Assume that Boeing has 800 million shares outstanding and Lockheed Martin has 425 million shares outstanding.Prior to this announcement,the market felt that the probability of Boeing winning the contract was 90% and that Lockheed-Martin's chance was only about 10%. -What are the implications of the efficient markets hypothesis for corporate managers?

Because of a catastrophic plane crash,the FAA announced that it is withdrawing its air worthiness certification for Fly by Night Aviation's (FBNA)new four-seat private plane.As a result,FBNA's future expected free cash flows will decline by $40 million a year for the next eight years.FBNA has 20 million shares outstanding,no debt,and an equity cost of capital of 12%.If this news is a complete surprise to investors,then the amount that FBNA's stock price should fall upon the announcement is closest to:

Which of the following equations is INCORRECT?

Vacinox is a biotechnology firm that is about to announce the results of its clinical trials of a potential new vaccine.If the trials are successful,Vacinox stock will be worth $80 per share.However,if the trials are not successful,then Vacinox stock will only be worth $12 per share.If on the morning that the announcement is scheduled,Vacinox stock is trading for $60.96,then the probability that investors place on the trials being successful are closest to:

Use the information for the question(s)below. Von Bora Corporation is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%. -Suppose you plan to hold Von Bora stock for only one year.Your capital gain rate from holding Von Bora stock for the first year is closest to:

Use the information for the question(s)below. Von Bora Corporation is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%. -Suppose you plan to hold Von Bora stock for only one year.Calculate your total return from holding Von Bora stock for the first year.

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. Wyatt Oil,an all-equity financed firm,has just reported EPS of $4.00 per share.Despite an economic downturn,Wyatt is confident regarding its current investment opportunities,but due to the current financial crisis,Wyatt does not wish to fund these investments externally.Wyatt's board has therefore decided to suspend its stock repurchase plan and cut its dividend to $1 per share (from its current level of $2 per share)and retain these funds instead.The firm just paid its current dividend of $1.00 per share and expects to keep its dividend at $1 per share next year as well.In subsequent years,it expects its growth opportunities to slow,and it will still be able to fund its growth internally with a target 40% dividend payout ratio,and reinitiating its stock repurchase plan for a total payout rate of 60%.All dividends and repurchases occur at the end of each year. Wyatt's existing operations are expected to generate the current level of earnings per share in the future.Assume that the return on new investments is 16% and that reinvestments will account for all future earnings growth.Wyatt's current equity cost of capital is 12%. -Wyatt's current stock price is closest to:

The Sisyphean Company's common stock is currently trading for $25.00 per share.The stock is expected to pay a $2.50 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 14%.If the dividend payout rate is expected to remain constant,then the expected growth rate in the Sisyphean Company's earnings is closest to:

Which of the following statements is FALSE?

You expect Whirlpool Corporation (WHR)to have earnings per share of $6.10 over the coming year.If Whirlpool stock is currently trading at $87.00 per share,then Whirlpool's P/E ratio is closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. -Assuming that Novartis AG (NVS)has an EPS of $3.35,based upon the average price-to-book ratio for its competitors,Novartis' stock price is closest to:

Which of the following statements is FALSE?

Which of the following formulas is INCORRECT?