Exam 4: The Value of Common Stocks

Assume General Electric (GE) has about 10.3 billion shares outstanding and the stock price is $37.10.Also, assume the P/E ratio is about 18.3.Calculate the approximate market capitalization for GE.

Summer Co.expects to pay a dividend of $4.00 per share-one year from now-out of earnings of $7.50 per share.If the required rate of return on the stock is 15 percent and its dividends are growing at a constant rate of 10 percent per year, calculate the present value of growth opportunities for the stock (PVGO).

Which of the following stocks is a growth stock?

In which of the following stock exchanges are there designated market makers who act as auctioneers?

For most firms, market value is usually greater than book value.

Analysts often value companies by forecasting a series of cash flows and then estimating a horizon value.Suppose a firm forecasts a project's net cash flows ($millions) in years 1 through 4 as $120, $130, $135, and $137, respectively.If the project ends at the end of the fourth year, what is the horizon value of the project? Assume that the company had a historical growth rate of 3 percent and has a discount rate of 10 percent.

Seven-Seas Co.just paid a dividend of $3 per share out of earnings of $5 per share.If its book value per share is $40.00 and its market price is $52.50 per share, calculate the required rate of return on the stock.

River Co.just paid a dividend of $2 per share out of earnings of $4 per share.If its book value per share is $25 and its stock is currently selling for $40 per share, calculate the required rate of return on the stock.

An investor who uses a limit order instructs his brokerage firm to buy a limited quantity of shares at the best available price.

Generally, high growth stocks pay

The valuation of a common stock today primarily depends on

Company X has a P/E ratio of 10 and a stock price of $50 per share.Calculate earnings per share of the company.

The constant dividend growth formula P₀ = Div₁/(r - g) assumes .

Parcel Corporation expects to pay a dividend of $5 per share next year, and the dividend payout ratio is 50 percent.If dividends are expected to grow at a constant rate of 8 percent forever, and the required rate of return on the stock is 13 percent, calculate the present value of growth opportunities.

R&D Technology Corporation just paid a dividend of $0.50 per share.Analysts expect its dividend to grow at 24 percent per year for the next two years and then 8 percent per year thereafter.If the required rate of return in the stock is 16 percent, calculate the current value of the stock.

Ocean Co.just paid a dividend of $2 per share out of earnings of $4 per share.If the book value per share is $25, what is the expected growth rate in dividends (g)?

Will Co.is expected to pay a dividend of $2 per share at the end of year 1(Div₁), and the dividends are expected to grow at a constant rate of 4 percent forever.If the current price of the stock is $20 per share, calculate the expected return or the cost of equity capital for the firm.

Most of the trading on the NYSE is in ordinary common stocks.

Discuss the term price-earnings (P/E) ratio.

Casino Inc.expects to pay a dividend of $3 per share at the end of year 1 (Div₁) and these dividends are expected to grow at a constant rate of 6 percent per year forever.If the required rate of return on the stock is 18 percent, what is the current value of the stock today?