Exam 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

The following data pertain to LDP Corporation (dollar amounts in thousands) Using the information pertaining to LDP Corporation calculate the following information:

A company with a market beta of 1 has systemic risk ____________________ to the average amount of systemic risk of all equity securities in the market.

In what case will using dividends expected to be paid to shareholders yield the same valuation for the firm as using free cash flows expected to be generated by the firm?

Zolar Corp. The following data pertains to Zolar Corp., a manufacturer of ball bearings (dollar amounts in millions): Using the above information, calculate Zolar's weighted-average cost of capital:

LA Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company: Using the above information and assuming that steady-state growth in year 2012 and beyond will be 4% calculate LA Sunglasses value per share.

Equity based valuation models are based on all metrics except

One rational for using expected dividends in valuation is

Because the market equity beta reflects the level of operating leverage, financial leverage, variability of sales and other characteristics of a firm there are situations where an analyst might have to adjust the beta because of changes in the capital structure. A situation that might require an analyst to estimate a new levered beta is a ___________________________________.

In some valuation scenarios, such as a leveraged buyout, it may be necessary to adjust the market equity beta to reflect a ________________________________________.

Which of the following is not a problem with using a dividend-based valuation formula

Zolar Corp. The following data pertains to Zolar Corp., a manufacturer of ball bearings (dollar amounts in millions): Assume that Zolar is a potential leveraged buyout candidate. Assume that the buyer intends to put in place a capital structure with that has 70 percent debt with a pre tax borrowing cost of 14 percent and 30 percent common equity. Compute the weighted average cost of capital for Zolar based on the new capital structure.

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements. Discuss what three elements need to be measured by the analyst.

To determine the appropriate weights to use in the weighted average cost of capital, an analyst will need to determine the ______________________________ of the debt, preferred stock and common equity capital.

Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.

Normally, valuation methods are designed to produce reliable estimates of the value of a firm's ______________________________.

Under the assumption of clean surplus accounting how would you compute total dividends paid to common equityholders in order to value the firm?

The following financial statement data pertains to Jane's Coats, a manufacturer of women's outerware (dollar amounts in millions): Required:

One criticism in using the CAPM to calculate the cost of equity capital is that ______________________________ and the __________________________________________________ are quite sensitive to the time period and methodology used in their computation.

Zolar Corp. The following data pertains to Zolar Corp., a manufacturer of ball bearings (dollar amounts in millions): Determine the weight on debt capital that should be used to calculate Zolar's weighted-average cost of capital:

If dividend projections include the effect of inflation then the discount rate used should be a ____________________ rate.