Price, J - Chp 8 HW

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Clovis Commuity College *

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22A

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Finance

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Feb 20, 2024

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xlsx

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Uploaded by juliamprice

estimated sales $100,000,000 estimated EPS $2 shares os 5,000,000 P/E 24.5 net profit margin 10% lastest prive $40 payout 50% future earnings $10,000,000 div/share $1 estimated price $49 expecting HPR 25% An investor estimates that next year’s sales for Dursley’s Hotels, Inc. should amount to about $100 million. The company has five million shares outstanding, generates a net profit margin of about 10 and has a payout ratio of 50%. All figures are expected to hold for next year. Given this information, compute the following. Estimated net earnings for next year Next year’s dividends per share The expected price of the stock (assuming the P/E ratio is 24.5 times earnings) The expected holding period return (latest stock price: $40 per share)

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equity $73,000,000,000 shares os 675,000,000 Return on equity 12.70% ROE=net income/equity payout ratio 21% dividend payout ratio=DPS/EPS Net income $9,271,000,000.00 EPS $ 13.73 dividends/share $ 2.88 Jensen Inc. has total equity of $73 billion and 675 million shares outstanding. Its ROE is 12.7%. The dividend payout ratio is 21%. Calculate the company’s dividends per share (round to the nearest penny).

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ROE 8.60% payout 38.14% growth 3.28% Big Auto has an ROE of 8.6%. Its earnings per share are $0.97, and its dividends per share are $0.37. Estimate Big Auto’s growth rate.

dividend $3 trading $21 rr 13% price $23.08 expected return 14.29% Yes, Jack should buy the stock because it is undervalued and and the expected return is higher than his required return Jack is considering a stock purchase. The stock pays a constant annual dividend of $3.00 per share and is currently trading at $21. Jack’s required rate of return for this stock is 13%. Should he buy this stock?

Dividend $ 2.00 per share Current FCF $ 1,000,000.00 Growth Rate 6% RRR 11% Shares Outst 600000 PV of Future $ 42.40 Wilbur and Orville are brothers. They’re both serious investors, but they have different approaches to valuing stocks. Wilbur, the older brother, likes to use the dividend valuation model. Orville prefers the free cash flow to equity valuation model. As it turns out, right now, both of them are looking at the same stock—Wright First Aerodynamics Inc. (WFA). The company has been listed on the NYSE for more than 50 years and is widely regarded as a mature, rock-solid, dividend-paying stock. The brothers have gathered the following information about WFA’s stock: How would Wilbur and Orville each value this stock?

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D0 $ 2.00 D1 $ 2.27 D2 $ 2.71 D3 $ 3.10 Growth Rate 7% RRR 12% Year Most recent dividend: 0 $2.00 Future dividends: 1 $2.27 2 $2.71 3 $3.10 Rs = 12% G4+ = 7% Year PV D0 = $2.00 1 ($2.03) <--- D1 = $2.27 2 ($2.16) <--- D2 = $2.71 3 ($2.21) <--- D3 = $3.10 4 D4 = $3.32 P0 ($47.22) <--- P3 = $66.34 (Horizon Value Price) a. Price = ($53.61) Dividend amount Assume you’ve generated the following information about the stock of Ben’s Banana Splits: The company’s latest dividends of $2.00 a share are expected to grow to $2.27 next year, to $2.71 the year after that, and to $3.10 in three years. After that, you think dividends will grow at a constant 7% rate. Use the variable-growth version of the dividend valuation model and a required return of 12% to find the value of the stock. Suppose you plan to hold the stock for three years, selling it immediately after receiving the $3.10 dividend. What is the stock’s expected selling price at that time? As in part a , assume a required return of 12%.

Firm Expected dividend Dividend Growth Rate Required Return A $ 1.20 8% 13% B $ 4.00 5% 15% C $ 0.65 10% 14% D $ 6.00 8% 9% E $ 2.25 8% 20% A $ 24.00 B $ 40.00 C $ 16.25 D $ 600.00 E $ 18.75 Use the constant-growth dividend valuation model to find the value of each firm shown in the following table.

nper 4% required rate of return 11% future price $75 current price $50 expected ror 50% Ms. Johnson should buy Jane's Book Co. stock because it's expected rate of return is 50%, which exceeds her required rate of return The price of Jane’s Book Co. is now $50. The company pays no dividends. Ms. Johnson expects the price four years from now to be $75 per share. Should she buy Jane’s Book Co. stock if she desires a 9% rate of return? Explain.

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only a - d net income $2,500,000 expected growth 5% deductions $300,000 required return 8% working capital $100,000 shares os 3500000 fixed assets $350,000 EPS $0.71 FCF $2,350,000 PV of CF $78,333,333.33 price per share $22.38 P/E 31.33 The Millennium Company earned $2.5 million in net income last year. It took depreciation deduc investments in working capital and fixed assets of $100,000 and $350,000, respectively. What was Millennium’s free cash flow last year? Suppose that the company’s free cash flow is expected to grow at 5% per year forever. If investor stock, what is the present value of Millennium’s future free cash flows? Millennium has 3.5 million shares of common stock outstanding. What is the per-share value of t What is Millenium’s P/E ratio based on last year’s earnings (i.e., trailing earnings)?

ctions of $300,000 and made new rs require an 8% return on Millennium the company’s common stock?

Payout ratio 38% roe 19% rentention rate 62% growth rate 11.78% year dividend PVF at 14% PV of Dividends 1 0.87719298 $ - 2 0.76946753 $ - 3 0.67497152 $ - 4 $2 0.59208028 $ 1.18 5 $2.24 $ 59.62 $ 60.81 Captured Photographs doesn’t currently pay any dividends but is expected to start doing so in four years. That is, Captured Photographs will go three more years without paying dividends and then is expected to pay its first dividend (of $2 per share) in the fourth year. Once the company starts paying dividends, it’s expected to continue to do so. The company is expected to have a dividend payout ratio of 38% and to maintain a return on equity of 19%. Based on the DVM, and given a required rate of return of 14%, what is the maximum price you should be willing to pay for this stock today?

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Year FCF 2020 $ 200,000.00 2021 $ 250,000.00 2022 $ 310,000.00 2023 $ 350,000.00 2024 $ 390,000.00 Rs = 3% G1 = 25% G2 = 24% G3 = 13% G4 = 11% Year FCF 0 = $ 200,000.00 1 ($242,718.45) <--- FCF 1 = $ 250,000.00 2 ($292,204.73) <--- FCF 2 = $ 310,000.00 3 FCF 3 = $ 350,000.00 P0 $3,331,324.30 <--- EV 2 = -$3,534,201.95 Price = $2,796,401.13 Price per Share: $6.99 Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firm’s common stock value. The firm’s CFO has gathered data for performing the valuation using the free cash flow valuation model. The firm’s weighted average cost of capital is 11%, and it has $1,500,000 of debt and $400,000 of preferred stock in terms of market value. The estimated free cash flows over the next five years, 2020 through 2024, are given. Beyond 2024 to infinity, the firm expects its free cash flow to grow by 3% annually. Estimate the value of Nabor Industries’ entire company by using the free cash flow valuation model. Use your finding in part a along with the data provided previously to find Nabor Industries’ common stock value. If the firm plans to issue 200,000 shares of common stock, what is its estimated value per share?