HW9

xlsx

School

Temple University *

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Course

3507

Subject

Finance

Date

Apr 3, 2024

Type

xlsx

Pages

43

Uploaded by talissaalleynemars

Report
Required: Explanation = $27.67 27.6678571 Deployment Specialists pays a current (annual) dividend of $1 and is exp Intrinsic value =  V D 1 /(1 +  k ) +  D 2 /(1 +  k ) 2  + ... + (1 × 1.22)/(1 + 0.120) + ($1 × 1.222)/(1 + 0.120)2 +
pected to grow at 22% for two years and then at 7% thereafter. If the requir ( D H  +  P H )/(1 +  k ) H + ($1 × 1.222 × 1.07)/((0.120 − 0.07) × (1 + 0.120)2) ×
red return for Deployment Specialists is 12.0%, what is the intrinsic value × 1.22)/(1 + 0.120) + ($1 × 1.22 2 )/(1 + 0.120) 2  + ($1 ×
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of its stock?  (Do not round intermediate calculations. Round 1.22 2  × 1.07)/((0.120 − 0.07) × (1 + 0.120) 2 )
d your answer to 2 decimal places.)
Explanation SOLVE FOR PVGO 44= (2.60/0.06) + PVGO ri-coat Paints has a current market value of $44 per share with earnings o Price = $44 = ( E 1 /k ) + PVGO = ($2.60/0.06) + PVGO   P
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of $2.60. What is the present value of its growth opportunities (PVGO) if th PVGO = $0.67
he required return is 6%?  (Do not round intermediate calculatio
ons. Round your answer to 2 decimal places.)
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Miltmar Corporation will pay a year-end dividend of $5, and dividends the Required: 0.089 102.040816 = 0.04 + 0.70 × (0.11 -- 0.04) = 0.0890 = 8.90% a. Calculate the market capitalization rate.  (Do not round intermed b. What is the intrinsic value of the stock? (Do not round intermediate calculat Market capitalization rate = k = r f + β × [ E ( r M ) − r f ] Intrinsic value = V 0 = D 1 / ( k g ) = $5/(0.0890 − 0.04) = $102.04
ereafter are expected to grow at the constant rate of 4% per year. The risk- diate calculations. Round your answer to 2 decimal places tions. Round your answer to 2 decimal places.) 4
-free rate is 4%, and the expected return on the market portfolio is 11%. T s.)
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The stock has a beta of 0.70.
Sisters Corporation expects to earn $4 per share next year. The firm’s RO Required: 160 120 SOLVE FOR PVGO Explanation a. b. & c. Then, knowing that the price is equal to the price with no growth plus the a. Calculate the price with the constant dividend growth model.   (Do not b. Calculate the price with no growth. 160 = $4/0.10 + PVGO c. What is the present value of its growth opportunities?  (Do not roun Given EPS = $4, ROE = 15%, plowback ratio = 0.60, and  k  = 10%, we firs P 0 = D 1 /( k  −  g ) = (EPS × (1 −  b ))/( k  − ROE ×  b ) = ($4 × Price = $160 =  E 1 /k + PVGO = $4/0.10 + PVGO   PVGO = $
OE is 15% and its plowback ratio is 60%. The firm’s market capitalization r present value of the growth opportunity, we can solve the following equati t round intermediate calculations.) nd intermediate calculations.) st calculate the price with the constant dividend growth model: × (1 − 0.60))/(0.10 − 0.15 × 0.60) = $1.60/(0.10 − 0.09 $160 − $40 = $120
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rate is 10%. ion: 90) = $160
A stock has an intrinsic value of $15 and an actual stock Multiple Choice will generate a positive alphaCorrect has an expected return less than its required return has a beta > 1 has a Tobin's q value < 1
price of $13.50. You know that this stock __________.
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A firm cuts its dividend payout ratio. As a result, you kno Multiple Choice return on assets will increase earnings retention ratio will increaseCorrect earnings growth rate will fall stock price will fall
ow that the firm's __________.
An underpriced stock provides an expected return that is Multiple Choice less than equal to greater thanCorrect greater than or equal to
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s __________ the required return based on the capital asse
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et pricing model (CAPM).
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You are considering acquiring a common share of Sahali Multiple Choice $31.25 $32.37Correct $38.47 $41.32 Explanation V 0 = P 1 + D 1/ 1 + r = ( $35.00 + $1.25)/1.12 = $32.37
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Shopping Center Corporation that you would like to hold
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d for 1 year. You expect to receive both $1.25 in dividend
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ds and $35 from the sale of the share at the end of the ye
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ear. The maximum price you would pay for a share today
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y is __________ if you wanted to earn a 12% return.
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The market capitalization rate on the stock of Aberdeen Multiple Choice 8.33 12.50Correct 19.23 24.15 Explanation b = 0.5D 1 = (1 − b) × E 1 = (1 − 0.5) × $5 = $2.50g = 0.
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Wholesale Company is 10%. Its expected ROE is 12%, an .5 × 0.12 = 0.06 = 6.00%V 0 = D 1/( r − g) = $2.50/(0.10 − 0.06) =
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nd its expected EPS is $5. If the firm's plowback ratio is 5 $62.50, P/E = V 0/ E 1 = $62.50/$5.00 = 12.50
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50%, its P/E ratio will be __________.
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A preferred share of Coquihalla Corporation will pay a div Multiple Choice $13.50 $45.50 $91.87 $114.29Correct Explanation V 0 = D 1/ r = $8.00/0.07 = $114.29
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vidend of $8 in the upcoming year and every year therea
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after; that is, dividends are not expected to grow. You req
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quire a return of 7% on this stock. Using the constant-gro
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owth DDM to calculate the intrinsic value, a preferred sha
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are of Coquihalla Corporation is worth __________.
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P/E ratios tend to be __________ when inflation is ________ Multiple Choice higher; higher lower; lower higher; lowerCorrect they are unrelated
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___.
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Which one of the following is a common term for the mar Multiple Choice Dividend payout ratio Intrinsic value Market capitalization rate Plowback ratio
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rket consensus value of the required return on a stock?
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