Deck 18: Option Valuation

Question 1

The ______ is a common term for the market consensus value of the required return on a stock.

A)dividend payout ratio
B)intrinsic value
C)market capitalization rate
D)plowback rate
E)none of the above

Answer 1

C

Question 2

________ are analysts who use information concerning current and prospective profitability of a firm to assess the firm's fair market value.

A)Credit analysts
B)Fundamental analysts
C)Systems analysts
D)Technical analysts
E)Specialists

Answer 2

B

Question 3

You wish to earn a return of 13% on each of two stocks,X and Y.Stock X is expected to pay a dividend of $3 in the upcoming year while Stock Y is expected to pay a dividend of $4 in the upcoming year.The expected growth rate of dividends for both stocks is 7%.The intrinsic value of stock X ______.

A)will be greater than the intrinsic value of stock Y
B)will be the same as the intrinsic value of stock Y
C)will be less than the intrinsic value of stock Y
D)A or B
E)none of the above is a correct answer.

Answer 3

C

Question 4

You wish to earn a return of 10% on each of two stocks,C and D.Each of the stocks is expected to pay a dividend of $2 in the upcoming year.The expected growth rate of dividends is 9% for stock C and 10% for stock D.The intrinsic value of stock C _____.

A)will be greater than the intrinsic value of stock D
B)will be the same as the intrinsic value of stock D
C)will be less than the intrinsic value of stock D
D)A or B
E)none of the above is a correct statement.

Question 5

Historically,P/E ratios have tended to be _________.

A)higher when inflation has been high
B)lower when inflation has been high
C)uncorrelated with inflation rates but correlated with other macroeconomic variables
D)uncorrelated with any macroeconomic variables including inflation rates
E)none of the above

Question 6

Each of two stocks,A and B,are expected to pay a dividend of $5 in the upcoming year.The expected growth rate of dividends is 10% for both stocks.You require a rate of return of 11% on stock A and a return of 20% on stock B.The intrinsic value of stock A _____.

A)will be greater than the intrinsic value of stock B
B)will be the same as the intrinsic value of stock B
C)will be less than the intrinsic value of stock B
D)cannot be calculated without knowing the market rate of return
E)none of the above is true.

Question 7

_______ is the amount of money per common share that could be realized by breaking up the firm,selling the assets,repaying the debt,and distributing the remainder to shareholders.

A)Book value per share
B)Liquidation value per share
C)Market value per share
D)Tobin's Q
E)None of the above

Question 8

The _______ is defined as the present value of all cash proceeds to the investor in the stock.

A)dividend payout ratio
B)intrinsic value
C)market capitalization rate
D)plowback ratio
E)none of the above

Question 9

High P/E ratios tend to indicate that a company will _______,ceteris paribus.

A)grow quickly
B)grow at the same speed as the average company
C)grow slowly
D)not grow
E)none of the above

Question 10

Each of two stocks,C and D,are expected to pay a dividend of $3 in the upcoming year.The expected growth rate of dividends is 9% for both stocks.You require a rate of return of 10% on stock C and a return of 13% on stock D.The intrinsic value of stock C _____.

A)will be greater than the intrinsic value of stock D
B)will be the same as the intrinsic value of stock D
C)will be less than the intrinsic value of stock D
D)cannot be calculated without knowing the market rate of return
E)none of the above is true.

Question 11

Low Tech Company has an expected ROE of 10%.The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends.

A)6.0%
B)4.8%
C)7.2%
D)3.0%
E)none of the above

Question 12

You wish to earn a return of 11% on each of two stocks,C and

A)will be greater than the intrinsic value of stock D
B)will be the same as the intrinsic value of stock D
C)will be less than the intrinsic value of stock D
D)A or B
E)none of the above is a correct answer.

Question 13

If the expected ROE on reinvested earnings is equal to k,the multistage DDM reduces to

A)V0= (Expected Dividend Per Share in Year 1)/k
B)V0= (Expected EPS in Year 1)/k
C)V0= (Treasury Bond Yield in Year 1)/k
D)V0= (Market return in Year 1)/k
E)none of the above

Question 14

Music Doctors Company has an expected ROE of 14%.The dividend growth rate will be ________ if the firm follows a policy of paying 60% of earnings in the form of dividends.

A)4.8%
B)5.6%
C)7.2%
D)6.0%
E)none of the above

Question 15

_________ is equal to (common shareholders' equity/common shares outstanding).

A)Book value per share
B)Liquidation value per share
C)Market value per share
D)Tobin's Q
E)none of the above

Question 16

Since 1955,Treasury bond yields and earnings yields on stocks were_______.

A)identical
B)negatively correlated
C)positively correlated
D)uncorrelated

Question 17

You wish to earn a return of 12% on each of two stocks,A and B.Each of the stocks is expected to pay a dividend of $2 in the upcoming year.The expected growth rate of dividends is 9% for stock A and 10% for stock B.The intrinsic value of stock A _____.

A)will be greater than the intrinsic value of stock B
B)will be the same as the intrinsic value of stock B
C)will be less than the intrinsic value of stock B
D)A or B
E)none of the above is a correct statement.

Question 18

The Gordon model

A)is a generalization of the perpetuity formula to cover the case of a growing perpetuity.
B)is valid only when g is less than k.
C)is valid only when k is less than g.
D)A and B.
E)A and C.

Question 19

________ is equal to the total market value of the firm's common stock divided by (the replacement cost of the firm's assets less liabilities).

A)Book value per share
B)Liquidation value per share
C)Market value per share
D)Tobin's Q
E)None of the above.

Question 20

The _________ is the fraction of earnings reinvested in the firm.

A)dividend payout ratio
B)retention rate
C)plowback ratio
D)A and C
E)B and C

Question 21

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $3.50 in dividends and $42 from the sale of the stock at the end of the year.The maximum price you would pay for the stock today is _____ if you wanted to earn a 10% return.

A)$23.91
B)$24.11
C)$26.52
D)$27.50
E)none of the above

Question 22

A preferred stock will pay a dividend of $1.25 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 12% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

A)$11.56
B)$9.65
C)$11.82
D)$10.42
E)none of the above

Question 23

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $1.25 in dividends and $32 from the sale of the stock at the end of the year.The maximum price you would pay for the stock today is _____ if you wanted to earn a 10% return.

A)$30.23
B)$24.11
C)$26.52
D)$27.50
E)none of the above

Question 24

Light Construction Machinery Company has an expected ROE of 11%.The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends.

A)3.0%
B)4.8%
C)8.25%
D)9.0%
E)none of the above

Question 25

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $2.50 in dividends and $28 from the sale of the stock at the end of the year.The maximum price you would pay for the stock today is _____ if you wanted to earn a 15% return.

A)$23.91
B)$24.11
C)$26.52
D)$27.50
E)none of the above

Question 26

A preferred stock will pay a dividend of $3.50 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 11% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

A)$0.39
B)$0.56
C)$31.82
D)$56.25
E)none of the above

Question 27

Xlink Company has an expected ROE of 15%.The dividend growth rate will be _______ if the firm follows a policy of plowing back 75% of earnings.

A)3.75%
B)11.25%
C)8.25%
D)15.0%
E)none of the above

Question 28

A preferred stock will pay a dividend of $2.75 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 10% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

A)$0.275
B)$27.50
C)$31.82
D)$56.25
E)none of the above

Question 29

A preferred stock will pay a dividend of $7.50 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 10% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

A)$0.75
B)$7.50
C)$64.12
D)$56.25
E)none of the above

Question 30

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $0.75 in dividends and $16 from the sale of the stock at the end of the year.The maximum price you would pay for the stock today is _____ if you wanted to earn a 12% return.

A)$23.91
B)$14.96
C)$26.52
D)$27.50
E)none of the above

Question 31

A preferred stock will pay a dividend of $6.00 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 10% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

A)$0.60
B)$6.00
C)$600
D)$60.00
E)none of the above

Question 32

The most popular approach to forecasting the overall stock market is to use

A)the dividend multiplier.
B)the aggregate return on assets.
C)the historical ratio of book value to market value.
D)the aggregate earnings multiplier.
E)Tobin's Q.

Question 33

High Speed Company has an expected ROE of 15%.The dividend growth rate will be ________ if the firm follows a policy of paying 50% of earnings in the form of dividends.

A)3.0%
B)4.8%
C)7.5%
D)6.0%
E)none of the above

Question 34

One of the problems with attempting to forecast stock market values is that

A)there are no variables that seem to predict market return.
B)the earnings multiplier approach can only be used at the firm level.
C)the level of uncertainty surrounding the forecast will always be quite high.
D)dividend payout ratios are highly variable.
E)none of the above.

Question 35

Paper Express Company has a balance sheet which lists $85 million in assets, $40 million in liabilities and $45 million in common shareholders' equity. It has 1,400,000 common shares outstanding. The replacement cost of the assets is $115 million. The market share price is $90.
What is Paper Express's market value per share?

A)$1.68
B)$2.60
C)$32.14
D)$60.71
E)none of the above

Question 36

Bubba Gumm Company has an expected ROE of 9%.The dividend growth rate will be _______ if the firm follows a policy of plowing back 10% of earnings.

A)90%
B)10%
C)9%
D)0.9%
E)none of the above

Question 37

Paper Express Company has a balance sheet which lists $85 million in assets, $40 million in liabilities and $45 million in common shareholders' equity. It has 1,400,000 common shares outstanding. The replacement cost of the assets is $115 million. The market share price is $90.
What is Paper Express's book value per share?

A)$1.68
B)$2.60
C)$32.14
D)$60.71
E)none of the above

Question 38

A preferred stock will pay a dividend of $3.00 in the upcoming year,and every year thereafter,i.e.,dividends are not expected to grow.You require a return of 9% on this stock.Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

A)$33.33
B)$0.27
C)$31.82
D)$56.25
E)none of the above

Question 39

Medtronic Company has an expected ROE of 16%.The dividend growth rate will be ________ if the firm follows a policy of paying 70% of earnings in the form of dividends.

A)3.0%
B)6.0%
C)7.2%
D)4.8%
E)none of the above

Question 40

Think Tank Company has an expected ROE of 26%.The dividend growth rate will be _______ if the firm follows a policy of plowing back 90% of earnings.

A)2.6%
B)10%
C)23.4%
D)90%
E)none of the above

Question 41

Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25.
If Sure's intrinsic value is $21.00 today,what must be its growth rate?

A)0.0%
B)10%
C)4%
D)6%
E)7%

Question 42

Suppose that the average P/E multiple in the oil industry is 16.Shell Oil is expected to have an EPS of $4.50 in the coming year.The intrinsic value of Shell Oil stock should be _____.

A)$28.12
B)$35.55
C)$63.00
D)$72.00
E)none of the above

Question 43

Midwest Airline is expected to pay a dividend of $7 in the coming year.Dividends are expected to grow at the rate of 15% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Midwest Airline has a beta of 3.00.The return you should require on the stock is ________.

A)10%
B)18%
C)30%
D)42%
E)none of the above

Question 44

High Tech Chip Company is expected to have EPS in the coming year of $2.50.The expected ROE is 12.5%.An appropriate required return on the stock is 11%.If the firm has a plowback ratio of 70%,the growth rate of dividends should be

A)5.00%
B)6.25%
C)6.60%
D)7.50%
E)8.75%

Question 45

A company paid a dividend last year of $1.75.The expected ROE for next year is 14.5%.An appropriate required return on the stock is 10%.If the firm has a plowback ratio of 75%,the dividend in the coming year should be

A)$1.80
B)$2.12
C)$1.77
D)$1.94
E)none of the above

Question 46

Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2.
What is the intrinsic value of Torque's stock?

A)$14.29
B)$14.60
C)$12.33
D)$11.62
E)none of the above

Question 47

Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25.
The market's required rate of return on Sure's stock is _____.

A)14.0%
B)17.5%
C)16.5%
D)15.25%
E)none of the above

Question 48

High Tech Chip Company paid a dividend last year of $2.50.The expected ROE for next year is 12.5%.An appropriate required return on the stock is 11%.If the firm has a plowback ratio of 60%,the dividend in the coming year should be

A)$1.00
B)$2.50
C)$2.69
D)$2.81
E)none of the above

Question 49

Suppose that the average P/E multiple in the gas industry is 17.KMP is expected to have an EPS of $5.50 in the coming year.The intrinsic value of KMP stock should be _____.

A)$28.12
B)$93.50
C)$63.00
D)$72.00
E)none of the above

Question 50

Suppose that the average P/E multiple in the oil industry is 22.Exxon is expected to have an EPS of $1.50 in the coming year.The intrinsic value of Exxon stock should be _____.

A)$33.00
B)$35.55
C)$63.00
D)$72.00
E)none of the above

Question 51

An analyst has determined that the intrinsic value of IBM stock is $80 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 22,then it would be reasonable to assume the expected EPS of IBM in the coming year is ______.

A)$3.64
B)$4.44
C)$14.40
D)$22.50
E)none of the above

Question 52

Fools Gold Mining Company is expected to pay a dividend of $8 in the upcoming year.Dividends are expected to decline at the rate of 2% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Fools Gold Mining Company has a beta of -0.25.The return you should require on the stock is ________.

A)2%
B)4%
C)6%
D)8%
E)none of the above

Question 53

An analyst has determined that the intrinsic value of HPQ stock is $20 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 25,then it would be reasonable to assume the expected EPS of HPQ in the coming year is ______.

A)$3.63
B)$4.44
C)$0.80
D)$22.50
E)none of the above

Question 54

Suppose that the average P/E multiple in the oil industry is 20.Dominion Oil is expected to have an EPS of $3.00 in the coming year.The intrinsic value of Dominion Oil stock should be _____.

A)$28.12
B)$35.55
C)$60.00
D)$72.00
E)none of the above

Question 55

An analyst has determined that the intrinsic value of Dell stock is $34 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 27,then it would be reasonable to assume the expected EPS of Dell in the coming year is ______.

A)$3.63
B)$4.44
C)$14.40
D)$1.26
E)none of the above

Question 56

Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the coming year.Dividends are expected to decline at the rate of 2% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Old Quartz Gold Mining Company has a beta of -0.25.The intrinsic value of the stock is ______.

A)$80.00
B)$133.33
C)$200.00
D)$400.00
E)none of the above

Question 57

Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2.
What is the return you should require on Torque's stock?

A)12.0%
B)14.6%
C)15.6%
D)20%
E)none of the above

Question 58

Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25.
What is the intrinsic value of Sure's stock today?

A)$20.60
B)$20.00
C)$12.12
D)$22.00
E)none of the above

Question 59

Sunshine Corporation is expected to pay a dividend of $1.50 in the upcoming year.Dividends are expected to grow at the rate of 6% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Sunshine Corporation has a beta of 0.75.The intrinsic value of the stock is _______.

A)$10.71
B)$15.00
C)$17.75
D)$25.00
E)none of the above

Question 60

Low Fly Airline is expected to pay a dividend of $7 in the coming year.Dividends are expected to grow at the rate of 15% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Low Fly Airline has a beta of 3.00.The intrinsic value of the stock is ______.

A)$46.67
B)$50.00
C)$56.00
D)$62.50
E)none of the above

Question 61

Other things being equal,a low ________ would be most consistent with a relatively high growth rate of firm earnings and dividends.

A)dividend payout ratio
B)degree of financial leverage
C)variability of earnings
D)inflation rate
E)none of the above

Question 62

Antiquated Products Corporation produces goods that are very mature in their product life cycles.Antiquated Products Corporation is expected to pay a dividend in year 1 of $1.00,a dividend of $0.90 in year 2,and a dividend of $0.85 in year 3.After year 3,dividends are expected to decline at a rate of 2% per year.An appropriate required rate of return for the stock is 8%.The stock should be worth ______.

A)$8.49
B)$10.57
C)$20.00
D)$22.22
E)none of the above

Question 63

In the dividend discount model,which of the following are not incorporated into the discount rate?

A)Real risk-free rate
B)Risk premium for stocks
C)Return on assets
D)Expected inflation rate
E)None of the above

Question 64

A firm has a return on equity of 14% and a dividend payout ratio of 60%.The firm's anticipated growth rate is _________.

A)5.6%
B)10%
C)14%
D)20%
E)none of the above

Question 65

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.

A)an anticipated earnings growth rate which is less than that of the average firm
B)a dividend yield which is less than that of the average firm
C)less predictable earnings growth than that of the average firm
D)greater cyclicality of earnings growth than that of the average firm
E)none of the above.

Question 66

Sales Company paid a $1.00 dividend per share last year and is expected to continue to pay out 40% of earnings as dividends for the foreseeable future.If the firm is expected to generate a 10% return on equity in the future,and if you require a 12% return on the stock,the value of the stock is ________.

A)$17.67
B)$13.00
C)$16.67
D)$18.67
E)none of the above

Question 67

Risk Metrics Company is expected to pay a dividend of $3.50 in the coming year. Dividends are expected to grow at a rate of 10% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock is trading in the market today at a price of $90.00.
What is the market capitalization rate for Risk Metrics?

A)13.6%
B)13.9%
C)15.6%
D)16.9%
E)none of the above

Question 68

Exercise Bicycle Company is expected to pay a dividend in year 1 of $1.20,a dividend in year 2 of $1.50,and a dividend in year 3 of $2.00.After year 3,dividends are expected to grow at the rate of 10% per year.An appropriate required return for the stock is 14%.The stock should be worth _______ today.

A)$33.00
B)$39.86
C)$55.00
D)$66.00
E)$40.68

Question 69

The market capitalization rate on the stock of Flexsteel Company is 12%.The expected ROE is 13% and the expected EPS are $3.60.If the firm's plowback ratio is 75%,the P/E ratio will be ________.

A)7.69
B)8.33
C)9.09
D)11.11
E)none of the above

Question 70

Consider the free cash flow approach to stock valuation.Utica Manufacturing Company is expected to have before-tax cash flow from operations of $500,000 in the coming year.The firm's corporate tax rate is 30%.It is expected that $200,000 of operating cash flow will be invested in new fixed assets.Depreciation for the year will be $100,000.After the coming year,cash flows are expected to grow at 6% per year.The appropriate market capitalization rate for unleveraged cash flow is 15% per year.The firm has no outstanding debt.The projected free cash flow of Utica Manufacturing Company for the coming year is _______.

A)$150,000
B)$180,000
C)$300,000
D)$380,000
E)none of the above

Question 71

J.C.Penney Company is expected to pay a dividend in year 1 of $1.65,a dividend in year 2 of $1.97,and a dividend in year 3 of $2.54.After year 3,dividends are expected to grow at the rate of 8% per year.An appropriate required return for the stock is 11%.The stock should be worth _______ today.

A)$33.00
B)$40.67
C)$71.80
D)$66.00
E)none of the above

Question 72

A firm's earnings per share increased from $10 to $12,dividends increased from $4.00 to $4.80,and the share price increased from $80 to $90.Given this information,it follows that ________.

A)the stock experienced a drop in the P/E ratio
B)the firm had a decrease in dividend payout ratio
C)the firm increased the number of shares outstanding
D)the required rate of return decreased
E)none of the above

Question 73

Assume that Bolton Company will pay a $2.00 dividend per share next year,an increase from the current dividend of $1.50 per share that was just paid.After that,the dividend is expected to increase at a constant rate of 5%.If you require a 12% return on the stock,the value of the stock is ________.

A)$28.57
B)$28.79
C)$30.00
D)$31.78
E)none of the above

Question 74

Risk Metrics Company is expected to pay a dividend of $3.50 in the coming year. Dividends are expected to grow at a rate of 10% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock is trading in the market today at a price of $90.00.
What is the approximate beta of Risk Metrics's stock?

A)0.8
B)1.0
C)1.1
D)1.4
E)none of the above

Question 75

Mature Products Corporation produces goods that are very mature in their product life cycles.Mature Products Corporation is expected to pay a dividend in year 1 of $2.00,a dividend of $1.50 in year 2,and a dividend of $1.00 in year 3.After year 3,dividends are expected to decline at a rate of 1% per year.An appropriate required rate of return for the stock is 10%.The stock should be worth ______.

A)$9.00
B)$10.57
C)$20.00
D)$22.22
E)none of the above

Question 76

The market capitalization rate on the stock of Flexsteel Company is 12%.The expected ROE is 13% and the expected EPS are $3.60.If the firm's plowback ratio is 50%,the P/E ratio will be _________.

A)7.69
B)8.33
C)9.09
D)11.11
E)none of the above

Question 77

The market capitalization rate on the stock of Fast Growing Company is 20%.The expected ROE is 22% and the expected EPS are $6.10.If the firm's plowback ratio is 90%,the P/E ratio will be ________.

A)7.69
B)8.33
C)9.09
D)11.11
E)50

Question 78

A firm has a return on equity of 20% and a dividend payout ratio of 30%.The firm's anticipated growth rate is _________.

A)6%
B)10%
C)14%
D)20%
E)none of the above

Question 79

Consider the free cash flow approach to stock valuation.Utica Manufacturing Company is expected to have before-tax cash flow from operations of $500,000 in the coming year.The firm's corporate tax rate is 30%.It is expected that $200,000 of operating cash flow will be invested in new fixed assets.Depreciation for the year will be $100,000.After the coming year,cash flows are expected to grow at 6% per year.The appropriate market capitalization rate for unleveraged cash flow is 15% per year.The firm has no outstanding debt.The total value of the equity of Utica Manufacturing Company should be

A)$1,000,000
B)$2,000,000
C)$3,000,000
D)$4,000,000
E)none of the above

Question 80

Low Tech Chip Company is expected to have EPS of $2.50 in the coming year .The expected ROE is 14%.An appropriate required return on the stock is 11%.If the firm has a dividend payout ratio of 40%,the intrinsic value of the stock should be

A)$22.73
B)$27.50
C)$28.57
D)$38.46
E)none of the above