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Stock Valuation and Analysis Questions with Solutions

Question 1

Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of \$0.45 at the end of the year. Its dividend is expected to grow at a constant rate of 8.00% per year. If Walter’s stock currently trades for \$21.00 per share, what is the expected rate of return?

A) 8.02%

B) 10.14%

C) 8.19%

D) 5.34%

Portman Industries just paid a dividend of \$1.68 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman’s dividend is expected to grow at a constant rate of 4.00% per year. (Note: Do not round your intermediate calculations.)

 Term Value Dividends one year from now (D1D1) A) \$2.0160 B) 2.0966 C) 2.1805 D) 2.5159   (Note: Rounded to four decimal places) Horizon value (Pˆ1)P?1 A)\$14.98  B) \$20.16 C)\$20.97 D)52.42    (Note: Rounded to two decimal places) Intrinsic value of Portman’s stock A)23.94 B) 18.39 C) 20.16 D)24.19     (Note: Rounded to two decimal places)

The risk-free rate (rRFrRF) is 5.00%, the market risk premium (RPMRPM) is 6.00%, and Portman’s beta is 1.50. Assuming that the market is in equilibrium, use the information just given to complete the table.

What is the expected dividend yield for Portman’s stock today?

A) 10.96%

B) 9.61%

C) 10.00%

D) 8.00%

Portman has 800,000 shares outstanding, and Judy Davis, an investor, holds 12,000 shares at the current price (computed above). Suppose Portman is considering issuing 100,000 new shares at a price of \$17.14 per share. If the new shares are sold to outside investors, by how much will Judy’s investment in Portman Industries be diluted on a per-share basis?

A)\$0.34 per share

B)\$0.71 per share

C)\$0.29 per share

D)\$0.42 per share

Thus, Judy’s investment will be diluted, and Judy will experience a total A) Profit B) Loss  of
A) 3,060,
B) 4,896 ,
C ) .2,652
D) 4080

Weghorst Co. is a privately owned firm with few investors. Investors forecast their earnings per share (EPS) to reach \$4 this coming year. The average price-to-earnings (P/E) ratio for similar companies in the S&P 500 is 10. The estimated intrinsic value of Weghorst Co.’s stock will be
A)\$44.00
B). \$40.00
C).  0.00
D)\$2.50 per share.

Market multiple analysis is also used to calculate the value of a company, which is further used to calculate the intrinsic value per share of the firm.

Suppose you have the information given in the following table for Company X.

 Year 1 Year 2 EBITDA \$14,240 \$16,500 Total value of equity \$162,000 \$150,000 Total firm value \$243,000 \$270,000

What is value of the entity multiple of Company X in Year 1?

A)17.06

B)11.38

C)22.18

D)16.36

Anderson Animations Corporation (AAC) pays an annual dividend rate of 11.20% on its preferred stock that currently returns 15.01% and has a par value of \$100.00 per share. What is the value of ’s preferred stock?

A) \$89.54 per share

B) \$74.62 per share

C) \$100.00 per share

D) \$111.93 per share

Which of the following statements is true about the constant growth model?

A) The constant growth model implies that dividends remain constant from now to a certain terminal year.

B) The constant growth model implies that dividend growth remains constant from now to infinity.

CI just paid a dividend (D?) of \$1.92 per share, and its annual dividend is expected to grow at a constant rate (g) of 4.00% per year. If the required return (rss) on SCI’s stock is 10.00%, then the intrinsic value of SCI’s shares \$32 .00  B)\$33.28  C)36.61  D19.20  per share.

Use the constant growth model to calculate the appropriate values to complete the following statements about Super Carpeting Inc.: (Note: Do not round your intermediate calculations.)

 • If SCI’s stock is in equilibrium, the current expected dividend yield on the stock will be A)  5.77%  B) 6.00%  C)6.24%  D) 4.16%  per share. • SCI’s expected stock price one year from today will be \$20.77 B)32.00 C) D)\$34.61per share. • If SCI’s stock is in equilibrium, the current expected capital gains yield on SCI’s stock will be. A) \$9.20% B)4.00 % C)4.80% D) 0.24% per share.