An analyst is trying to estimate the intrinsic value of the stock of ATR Kim Eng. The analystestimates that ATR Kim Eng's free cash flow during the next year will be P25 million. Theanalyst also estimates that the company's free cash flow will increase at a constant rate of7% a year and that the company's WACC is 10%. ATR Kim Eng has P200 million of long-term debt and preferred stock and 30 million outstanding shares of common stock. Whatis the estimated per-share price of ATR Kim Eng's common stock?O P27.78O P8.33O P34.43O P21.11

Value of operations Free cash flow/(WACC-Growth rate) P25/(10%-7%) P25/3% P 833.33

Answered: An analyst is trying to estimate the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The stock of Z-Tech Plc is currently selling for £10 per share. Earnings per share in the coming year are expected to be £1.50. The company has a policy of paying out 20% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 7% internal rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Z-Tech’s investors require? b. By how much does Z-Tech’s stock price change if all its earnings are paid as dividends and nothing is reinvested? c. If the company were to increase its dividend payout ratio from 20% to 60%, what would happen to its stock price?
An analyst has collected the following information regarding Christopher Co.: · The company's capital structure is 70 percent equity, 30 percent debt. · The yield to maturity on the company's bonds is 5 percent. · The company's year-end dividend (D1) is forecasted to be $0.8 a share. · The company expects that its dividend will grow at a constant rate of 5 percent a year. · The company's stock price is $25. · The company's tax rate is 40 percent. · The company anticipates that it will need to raise new common stock this year. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's cost of new equity. Round it to two decimal places.
Moreover the Company has announced Rs.7 dividend this year. According to investor’s expectations it would grow at the rate of 9% for next 3 years, then at the rate of 8% for next 3 years and then at the rate of 7% thereafter. However the required rate of return of investor prevailing in the market is 15%. The company is also intending to calculate the intrinsic value of its share to check whether its security is overpriced or not in the market with respect to its competitors in the same industry.
Nikul
Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.68 per share and paid cash dividends of $1.98 per share (D0=$1.98). Grips' earnings and dividends are expected to grow at 25% per year for the next 3 years, after which they are expected to grow 5% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 14% on investments with risk characteristics similar to those of Grips?
Microsoft Co. has the following projected sales, costs, net investment, and free cash flow in millions. The anticipated growth rate in free cash flows after year 6 is 5% per year forever. There are 7.43 billion shares outstanding, and investors require a return of 8% on the company's stock and a comparable P/E ratio of 21. Calculate the company stock price using the P/E comparable approach to find the terminal value. (Round to 2 decimals) 1 5 232 282 120 146 40 48 72 88 50 61 22 27 ($ in Billions) Sales Costs Taxes OCF (net income) Net investment FCF 2 244 126 42 76 53 23 3 256 132 44 80 55 25 4 269 139 46 84 58 26 6 296 153 50 92 64 28
XYZ corp expects to earn $3.3 per share next year and plow back 24.24% of its earnings (i.e., it expects to pay out a dividend of $2.5 per share, representing 75.76% of its earnings). The dividends are expected to grow at a constant sustainable growth rate and the stocks are currently priced at $30 per share. How much of the stock's $30 price is reflected in Present Value of Growth Opportunities (PVGO) if the investors' required rate of return is 20%? $_________
The stock of Alpha Tool sells for $70.20 per share. Its current dividend rate, D0, is $2 per share. Analysts and investors expect Alpha to increase its dividends at a 30 percent rate for each of the next 2 years. This annual dividend growth rate is expected to decline to 26 percent for years 3 and 4 and then to settle down to 24 percent per year forever. Calculate the cost of internal equity for Alpha Tool. Use Table II for your calculations. Round your answer to the nearest whole number. %
A company had free cash flows of $788 million last year. Free cash flows are expected to grow at 3.5% per year. The WACC for the firm is 11.8%. They currently have $4.4 billion in debt outstanding, and have 233 million common stock outstanding. The company has 50 million preferred stock outstanding, that currently trade at $53. What is the estimate of the stock price based on the firm valuation model? Add your answer
The analyst estimates that after three years the National Inc’s free cash flow will grow at a constant rate of 6% per year. The analyst estimates that the company’s WACC is 10%. The total market value of debt and preferred stock is P25,000 and there are 1,000 outstanding shares of common stock. What is the intrinsic value of the company’s common stock? a. P99.50 b. P84.34 c. P75.31 d. P112.22
Veloo has just bought the common stock of XYZ company. The company expects to grow at the following rates for the next three years : 30%, 25%,and 15%. Last year the company paid a dividend of RM2.50. assume a required rate of return of 10%. Compute the expected dividends for the next three years and also the present value of these dividends.

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