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    Chapter 4 - Valuing Common Stock

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    Phạm Hà Minh
    This document contains 14 questions regarding financial concepts such as valuing common stock, calculating dividend payout and plowback ratios, and expected returns. The questions involve calculating values like market capitalization, expected dividend growth rates, and stock prices based on given dividend and growth rate information. The goal is to apply financial formulas and concepts to value stocks and calculate returns.

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    Download as PDF, TXT or read online from Scribd

    Chapter 4 - Valuing Common Stock

    Uploaded by

    Phạm Hà Minh
    15 views2 pages
    This document contains 14 questions regarding financial concepts such as valuing common stock, calculating dividend payout and plowback ratios, and expected returns. The questions involve calculating values like market capitalization, expected dividend growth rates, and stock prices based on given dividend and growth rate information. The goal is to apply financial formulas and concepts to value stocks and calculate returns.

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    CHAPTER 4_VALUING COMMON STOCK

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    This document contains 14 questions regarding financial concepts such as valuing common stock, calculating dividend payout and plowback ratios, and expected returns. The questions involve calculating values like market capitalization, expected dividend growth rates, and stock prices based on given dividend and growth rate information. The goal is to apply financial formulas and concepts to value stocks and calculate returns.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    15 views2 pages

    Chapter 4 - Valuing Common Stock

    Uploaded by

    Phạm Hà Minh
    This document contains 14 questions regarding financial concepts such as valuing common stock, calculating dividend payout and plowback ratios, and expected returns. The questions involve calculating values like market capitalization, expected dividend growth rates, and stock prices based on given dividend and growth rate information. The goal is to apply financial formulas and concepts to value stocks and calculate returns.

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    FINANCIAL MANAGEMENT

    CHAPTER 4: VALUING COMMON STOCK


    Question 1: 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
    market capitalization for GE.
    Question 2: Company XYZ reported earnings per share of $5 last year and paid $1
    in dividends. Caculate the dividend payout ratio and plowback ratio.
    Question 3: The Wall Street Journal quotation for a company has the following values:
    Div: $1.12, PE: 18.3, Close: $37.22. Calculate the dividend pay out ratio and plowback
    ratio for the company (Approximately).
    Question 4: If Fledgling Electronics is selling for $100 per share today and is expected
    to sell for $110 one year from now, what is the expected return if the dividend one year
    from now is forecasted to be $5.00?
    Question 5: Super Computer Company's stock is selling for $100 per share today. It
    is expected that this stock will pay a dividend of 6 dollars per share, and then be sold
    for $114 per share at the end of one year. Calculate the expected rate of return for the
    shareholders.
    Question 6: Current forecasts are for XYZ Company to pay dividends of $3, $3.24,
    and $3.50 over the next three years, respectively. At the end of three years you
    anticipate selling your stock at a market price of $94.48. What is the price of the stock
    given a 12% expected return?
    Question 7: Deluxe Company expects to pay a dividend of $2 per share at the end of
    year 1, $3 per share at the end of year 2 and then be sold for $32 per share. If the
    required rate on the stock is 15%, what is the current value of the stock?
    Question 8: Otobai Motor Company is currently paying a dividend of $3.23 per year.
    The dividends are expected to grow at a rate of 12% for the next three years and then
    a constant rate of 7% thereafter. What is the expected dividend per share in year 6?
    Question 9: SEAN Co. has just now paid a dividend of $5.83 per share (D0); the
    dividends are expected to grow at a constant rate of 5% per year forever. If the
    required rate of return on the stock is 11.5%, what is the current value on stock, after
    paying the dividend?
    Question 10: Consider the following three stocks:
    a) Stock A is expected to provide a dividend of $10 a share forever.
    b) Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend
    growth is expected to be 4% a year forever.
    c) Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend
    growth is expected to be 20% a year for five years (i.e., until year 6) and zero
    thereafter. If the market capitalization rate for each stock is 10%, which stock
    is the most valuable? What if the capitalization rate is 7%?

    GVTH: LE BAO THY 1


    FINANCIAL MANAGEMENT

    Question 11:
    The AIA Co. has just paid a dividend of $3.62 per share. The dividends are expected
    to grow at 25% per year for the next three years and at the rate of 5% per year
    thereafter. If the required rate of return on the stock is 18%(APR), what is the current
    value of the stock?
    Question 12:
    Will Co. is expected to pay a dividend of $2 per share at the end of year -1(D1) and
    the dividends are expected to grow at a constant rate of 4% 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.
    Question 13:
    Super Computer Company's stock is selling for $100 per share today. It is expected
    that this stock will pay a dividend of 8.5 dollars per share, and then be sold for $124
    per share at the end of one year. Calculate the expected rate of return for the
    shareholders.
    Question 14: Our company forecasts to pay a $8.33 dividend next year, which
    represents 100% of its earnings. This will provide investors with a 15% expected
    return. Instead, we decide to plowback 40% of the earnings at the firm’s current return
    on equity of 25%. What is the value of the stock before and after the plowback
    decision?
    
    THE END

    GVTH: LE BAO THY 2

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