Exam 9: Valuing Stocks

Use the following information to answer the question(s)below. Nielson Motors has a share price of $50.00.Its dividend was $2.50,and you expect Nielson Motors to raise its dividend by approximately 6% per year in perpetuity. -Given Nielson's current share price,if Nielson's equity cost of capital is 13%,then Nielson's expected growth rate 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 one year.The price one would expect to be able to sell a share of Von Bora stock for in one year is closest to:

Rearden Metals expects to have earnings this coming year of $2.50 per share.Rearden plans to retain all of its earnings for the next year.For the subsequent three years,the firm will retain 50% of its earnings.It will then retain 25% of its earnings from that point onward.Each year,retained earnings will be invested in new projects with an expected return of 20% per year.Any earnings that are not retained will be paid out as dividends.Assume Rearden's shares outstanding remains constant and all earnings growth comes from the investment of retained earnings.If Rearden's equity cost of capital is 10%,then Rearden's stock price is closest to:

Kinston Industries just announced that it will cut its dividend from $3.00 to $2.00 per share and use the extra funds to expand its operations.Kinston's dividends were expected to grow at a 2% rate,and its share price was $37.50.With the new expansion,Kinston dividends are expected to grow at a 5% rate.Kinston's share price following this announcement should be:

Growing Real Fast Company (GRF)is expected to have a 25 percent growth rate for the next four years (affecting D1,D2,D3,and D4).Beginning in year five,the growth rate is expected to drop to 7 percent per year and last indefinitely.If GRF just paid a $2.00 dividend and the appropriate discount rate is 15 percent,then what is the value of a share of GRE?

Wyatt Oil presently pays no dividend.You anticipate Wyatt Oil will pay an annual dividend of $0.56 per share two years from today and you expect dividends to grow by 4% per year thereafter.If Wyatt Oil's equity cost of capital is 12%,then the value of a share of Wyatt Oil today is:

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. Nielson Motors has a share price of $50.00.Its dividend was $2.50,and you expect Nielson Motors to raise its dividend by approximately 6% per year in perpetuity. -If Nielson's equity cost of capital is 13%,then Nielson's expected share price is closest to:

MJ LTD is expected to grow at various rates over the next five years.The company just paid a $1.00 dividend.The company expects to grow at 20% for the next two years (affecting D1 and D2),then the company expects to grow at 10% for three additional years (D3,D4,D5)after which the company expects to grow at a constant rate of 5% per year indefinitely.If the required rate of return on MJ's common stock is 12%,then what is a share of MJ's stock worth?

Use the information for the question(s)below. Defenestration Industries plans to pay a $4.00 dividend this year and you expect that the firm's earnings are on track to grow at 5% per year for the foreseeable future.Defenestration's equity cost of capital is 13%. -Suppose that Defenestration decides to pay a dividend of only $2 per share this year and use the remaining $2 per share to repurchase stock.If Defenestration's payout rate remains constant,then Defenestration's stock price is closest to:

Luther Industries has a dividend yield of 4.5% and a cost of equity capital of 12%.Luther Industries dividends are expected to grow at a constant rate indefinitely.The growth rate of Luther's dividends is closest to:

Use the following information to answer the question(s)below. -Assuming that Novartis AG (NVS)has an EPS of $3.35,based upon the P/E ratios for its competitors,the highest expected stock price for Novartis is closest to:

Use the following information to answer the question(s)below. Rearden Metals has a current stock price of $30 share,is expected to pay a dividend of $1.20 in one year,and its expected price right after paying that dividend is $33. -Rearden's expected dividend yield is closest to:

Use the information for the question(s)below. Defenestration Industries plans to pay a $4.00 dividend this year and you expect that the firm's earnings are on track to grow at 5% per year for the foreseeable future.Defenestration's equity cost of capital is 13%. -Assuming that Defenestration's dividend payout rate and expected growth rate remain constant,and Defenestration does not issue or repurchase shares,then Defenestration's stock price is closest to:

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 do you anticipate will happen to Lockheed-Martin and Boeing's stock prices as a result of this surprise announcement?

Taggart Transcontinental has a dividend yield of 2.5%.Taggart's equity cost of capital is 10%,and its dividends are expected to grow at a constant rate.Based on this information,Taggart's constant growth rate in dividends is closest to:

Use the information for the question(s)below. You expect DM Corporation to generate the following free cash flows over the next five years: Beginning with year six,you estimate that DM's free cash flows will grow at 6% per year and that DM's weighted average cost of capital is 15%. -If DM has $500 million of debt and 14 million shares of stock outstanding,then what is the price per share for DM Corporation?

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%. -The price you would be willing to pay today for a share of Von Bora stock,if you plan to hold the stock for two years is closest to:

If you want to value a firm that has consistent earnings growth,but varies how it pays out these earnings to shareholders between dividends and repurchases,the simplest model for you to use is the:

Use the information for the question(s)below. Suppose that Texas Trucking (TT)has earnings per share of $3.45 and EBITDA of $45 million.TT also has 5 million shares outstanding and debt of $150 million (net of cash).You believe that Oklahoma Logistics and Transport (OLT)is comparable to TT in terms of its underlying business,but OLT has no debt.OLT has a P/E of 12.5 and an enterprise value to EBITDA multiple of 7. -Based upon the enterprise value to EBITDA ratio,the value of a share of Texas Trucking is closest to: