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    Stock Valuation - Exercises

    Uploaded by

    Abhishek Rajpurohit

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    © All Rights Reserved
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    Stock Valuation - Exercises

    Uploaded by

    Abhishek Rajpurohit
    57 views2 pages

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    stock valuation - exercises

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    57 views2 pages

    Stock Valuation - Exercises

    Uploaded by

    Abhishek Rajpurohit

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Security Analysis and Portfolio Management

    Dr. Punita Rajpurohit

    Stock Valuation
    Exercises
    1. Prestige’s equity share is expected to provide a dividend of Rs. 2 and fetch a price
    of Rs 18 a year hence. What price would it sell for now if investors’ required rate
    of return is 12%?
    2. The earnings of Ramesh engineering limited is expected to grow at the rate of
    6% p.a. The dividend expected on equity share a year hence is Rs. 2. This too will
    grow at 6% p.a. What price will you put on it if your required rate of return for
    this share is 14%?
    3. The expected dividend per share on the equity share of Roadking Limited is Rs.
    2. The dividend per share of Roadking Limited has grown over the past five years
    at the rate of 5% per year. The growth rate will continue in future. Further, the
    market price of the equity share of Roadking Limited, too, is expected to grow at
    the same rate. What is a fair estimate of the intrinsic value of the equity share of
    Roadking Limited if the required rate is 15%?
    4. The expected dividend per share of Vaibhav Limited is Rs 5. The dividend is
    expected to grow at the rate of 6% per year. If the price per share now is Rs. 50,
    what is the expected rate of return?
    5. Omega Limited has an equity base of 100 at the beginning of year 1. It earns a
    return on equity of 20%. It pays out 40% of its equity earnings and ploughs back
    60% of its equity earnings. The financials are given below:

    Particulars Year Year Year


    1 2 3
    Beginning equity 100
    Return on equity 20% 20% 20%
    Equity earnings
    Dividend payout 0.4 0.4 0.4
    ratio
    Dividend
    Ploughback ratio 0.6 0.6 0.6
    Retained earnings

    Fill up the blank cells in the above table. Find out the growth rate.
    6. The current dividend on an equity share of Vertigo Limited is Rs. 2. Vertigo is
    expected to enjoy an above normal growth rate of 20% for a period of 6 years.
    Thereafter the growth rate will fall and stabilise at 10%. Equity investors require
    a return of 15%. What is the intrinsic value of equity share of Vertigo?
    7. The current dividend on an equity share of ICL Ltd. is Rs. 3. The present growth
    rate is 50%. However, this will decline linearly over a period of 10 years and
    then stabilise at 12%. What is the intrinsic value per share of ICL Ltd., if investors
    require a return of 16%?

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