Exam 7: Valuing Stocks

A stock is expected to pay $3.20 per share every year indefinitely and the equity cost of capital for the company is 10%.What price would an investor be expected to pay per share next year?

Bentham Books pays annual dividends and has just paid this year's dividend of $0.65.If its equity cost of capital is 12%,and dividends are expected to grow by 3% per year in the future,what is the value of Bentham's stock?

Several methods should be used to provide an estimate of a stock's value since no single method provides a definitive value.

Individual investors trade conservatively,given the difficulty of finding over- and under-valued stocks.

Sunnyfax Publishing pays out all its earnings and has a share price of $38.In order to expand,Sunnyfax Publishing decides to cut its dividend from $3.00 to $2.00 per share and reinvest the retained funds.Once the funds are reinvested,they are expected to grow at a rate of 12%.If the reinvestment does not affect Sunnyfaxs equity cost of capital,what is the expected share price as a consequence of this decision?

Stocks that do not pay a dividend must have a value of $0.

Which of the following is the appropriate way to calculate the price of a share of a given company using the free cash flow valuation model?

Use the table for the question(s) below. -The table above shows the stock prices and multiples for a number of firms in the newspaper publishing industry.Another newspaper publishing firm (not shown)had sales of $620 million,EBITDA of $84 million,excess cash of $66 million,$14 million of debt,and 120 million shares outstanding.If the average enterprise value to sales for comparable businesses is used,which of the following is the range of reasonable share price estimates?

Use the table for the question(s) below. -General Industries is expected to generate the above free cash flows over the next five years,after which free cash flows are expected to grow at a rate of 3% per year.If the weighted average cost of capital is 8% and General Industries has cash of $10 million,debt of $40 million,and 80 million shares outstanding,what is General Industries' expected terminal enterprise value?

Valence Electronics has 217 million shares outstanding.It expects earnings at the end of the year of $760 million.Valence pays out 40% of its earnings in total-15% paid out as dividends and 25% used to repurchase shares.If Valences earnings are expected to grow by 6% per year,these payout rates do not change,and Valence's equity cost of capital is 8%,what is Valences share price?

Rylan Industries is expected to pay a dividend of $5.20 per year for the next four years.If the current price of Rylan stock is $32.63,and Rylan's equity cost of capital is 14%,what price would you expect Rylan's stock to sell for at the end of the four years?

Use the figure for the question(s) below. -The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA).What is Logitech International SA (USA)'s ticker symbol?

Fanshaw Corporation is expected to pay an annual dividend of $0.20 per share in the coming year,and to trade for $15.15 at the end of the year.If investments with the same risk as Fanshaw's stock have an expected return of 10.75%,what is the most you would pay today for Fanshaw's stock?

What additional adjustments are required to find the share price,in case we are using the discounted cash flow model?

A stock is expected to pay $0.80 per share every year indefinitely.If the current price of the stock is $18.90,and the equity cost of capital for the company that released the shares is 6.4%,what price would an investor be expected to pay per share five years into the future?

Use the figure for the question(s) below. -The above screen shot from Google Finance shows basic stock information for PepsiCo.If you owned 2000 shares of PepsiCo for the period shown,how much would you have earned in dividend payments?

A firm can either pay its earnings out to its investors,or it can keep them and reinvest them.

Flinders Corporation's shares currently cost $32.00,and it has 80 million shares outstanding.If it pays out 70% of its earnings in total and its equity cost of capital is 10 percent,what are Flinders' earnings,given that these earnings are expected to grow by 5% per year in the future?

If you want to value a firm that consistently pays out its earnings as dividends,the simplest model for you to use is the

In the method of comparables,the known values of a firm's cash flows are used to estimate the unknown cash flows of a similar firm.