1- Micro Corp. just paid dividends of $2 per share. Assume that over the next three years dividends will grow as follows, 5% next year, 15% in year two, and 25% in year 3. After that growth is expected to level off to a constant growth rate of 10% per year. The required rate of return is 15%.
a. Calculate the intrinsic value using the multistage model.
b. The P/E ratio for BMI Corporation 21, and the P/S ratio is 5.2. The industry P/E ratio is 35 and the industry P/S ratio is 7.5. Based on relative valuation, BMI is
2- An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available:
Estimated profit margin = 15%
Total asset turnover = 2
Financial leverage = 1.2
Estimated dividend payout ratio = 75%
Required rate of return = 14%
Estimated EPS = $2.50
a. Calculate the firm's ROE
b. What is the firm's sustainable growth rate is
c. Refer to Exhibit 12-5. Calculate the P/E multiple
d. Calculate the firm's estimated share price
3- As an economist for a research firm you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been slow for 5 years, you expect the dividend-payout ratio to be 55%. Long-term government bond rates are at 6% and the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to be 11%.
a. Refer to Exhibit 12-8. What is the expected growth rate?
b. What is your expectation of the market P/E ratio?
4- The Home Appliance Industry had free cash flow to equity (FCFE) of $87 for the year ending December 31, 2007. The industry anticipates a growth rate of 8% for the next three years due to favorable economic conditions. However, the growth rate is expected to decline to 4% after three years and remain at that level indefinitely. The required rate of return is 12% for this industry.
a. Calculate the FCFE at the end of the 8% growth period three years from now.
b. Calculate the intrinsic value of the Home Appliance Industry at the end of the 8% growth period three years from now.
c. Calculate the intrinsic value of the Home Appliance Industry today.
5-
|
Investment
|
Beta
|
Analyst's Estimated Return
|
|
Stock X
|
2.3
|
15.5%
|
|
Stock Y
|
1.2
|
13.6%
|
|
Market Portfolio
|
1.0
|
11.5%
|
|
Risk-free rate 4.0%
|
|
|
a. What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?
b. What is the required rate of return for Stock Y based on the capital asset pricing model (CAPM)?
c. Based on the analyst's estimated return and the stocks' betas which stock should you buy/sell?
6- A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Given its risk you have a required rate of return for it of 12 percent. Your expected rate of return and investment decision is as follows:
7-
|
Company
|
Ticker
|
Coupon
|
Maturity
|
Last Price
|
Last Yield
|
EST Spread
|
UST
Est $ Vol (000's)
|
|
Microsoft
|
MSFR
|
3.25
|
12/31/2025
|
101.234
|
2.898
|
42
|
158736
|
a. What annual dollar coupon amount will investors receive?
b. What price would you pay in dollars to purchase this bond?
c. What is the estimated yield on Treasury securities?
d. What is the current yield for this bond?
e. What is the capital gains/loss yield on this bond?
8- Suppose Under Mutual Fund owns only the 3 stocks shown below with no liabilities.
Stock Shares Price
A 2900 15
B 3100 14
C 3200 12
The fund originated by selling $500,000 of stock at $50.00 per share. What is its current NAV?