Stock Valuation

A share of stock will pay a dividend of $4.00 per share a year from now. Analysts believe that dividends will rise at a constant rate of 6 percent per year for the foreseeable future. If the required return on the stock is 15 percent, what is the current price of the share?

According to the dividend discount model, the price of a share of common stock is equal to which of the following?

A firm's earnings and dividends are expected to grow at a rate of 15 percent for the next four years. After this period, the growth rate is expected to be 10 percent per year indefinitely. The dividend a year from today is expected to be $1.15. What is the price of the stock at the end of Year 5 if the required return is 15 percent?

Pagemaster Enterprises just reported earnings of $2 million and plans to retain 40 percent of its earnings. The historical return on equity (ROE) is 16 percent and is expected to continue. What is the expected growth rate for the company's earnings and dividends?

A stock is selling for $20 per share, and the next dividend is expected to be $1 per share. The dividend is expected to grow at a constant rate of 10 percent per year. What is the expected capital gains yield for this stock?

A company is considered a 'cash cow' because it pays out all its earnings as dividends. If its earnings per share (EPS) are $10 and its required return (R) is 10 percent, what is the value of a share of its stock?

A firm has earnings per share (EPS) of $10 and a required return of 10 percent. It has an opportunity to retain its earnings for one year to invest in a project that will increase all subsequent earnings by $2.10 per share. What is the Net Present Value of Growth Opportunities (NPVGO) per share for this project?

The stock price of a company can be expressed as the sum of its value as a cash cow and its Net Present Value of Growth Opportunities (NPVGO). Which two conditions must be met for a new project to increase the value of the firm?

A company in the specialty retail industry has earnings of $10 million. The average Price-to-Earnings (PE) ratio for comparable firms in the same industry is 12. Using the method of comparables, what is the estimated value of this company?

Which of the following is NOT a primary factor that determines a company's Price-to-Earnings (PE) ratio?

What is the primary difference between a securities dealer and a securities broker?

Gruber Corp. pays a constant $9 dividend on its stock. The company will maintain this dividend for the next 12 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price?

Universal Laser, Inc., just paid a dividend of $3.10. The dividend is expected to grow at 6 percent per year indefinitely. Investors require a 15 percent return for the first three years, a 13 percent return for the next three years, and an 11 percent return thereafter. What is the current share price?

What does the term 'order flow' mean in the context of the New York Stock Exchange (NYSE)?

A firm is being valued using the enterprise value (EV) to EBITDA ratio. Its EBITDA is $200 million. Comparable firms in the industry have an average EV/EBITDA multiple of 5. The firm has $300 million in debt and $100 million in cash. What is the estimated value of the firm's equity?

In the context of stock market operations, what is the 'bid-ask spread'?

Which of the following scenarios describes a stock with a zero growth rate in dividends?

Why might a financial analyst prefer using an EV/EBITDA ratio over a PE ratio when comparing two otherwise similar firms in the same industry?

What is the primary role of a Designated Market Maker (DMM) on the New York Stock Exchange (NYSE)?

What is the primary reason that one should discount a firm's dividends, rather than its earnings, to determine its stock price?

A stock currently sells for $72 per share. The required return on the stock is 11.5 percent. The total return is known to be evenly divided between a capital gains yield and a dividend yield. What is the current dividend per share, assuming a constant growth rate in dividends?

Ayden, Inc., has an issue of preferred stock outstanding that pays a $5.90 dividend every year in perpetuity. If this issue currently sells for $87 per share, what is the required return?

A company is planning to value its entire firm. It forecasts revenues to be $500 million in one year. Expenses (including depreciation) are 60 percent of revenues, and net investment is 10 percent of revenues. The corporate tax rate is 40 percent. What is the net cash flow for the first year?

What are the two key differences between the NYSE and NASDAQ stock markets?

Lohn Corporation is expected to pay dividends of $10, $7, $6, and $2.75 over the next four years, respectively. After the fourth year, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return is 13 percent, what is the current share price?

Hughes Co. just paid a dividend of $2.80 and is growing quickly. Dividends are expected to grow at 20 percent for the next three years, then fall to a constant 5 percent growth rate thereafter. If the required return is 12 percent, what is the current share price?

What is the role of electronic communications networks (ECNs) in the NASDAQ system?

If a firm has many valuable growth opportunities, how is it likely to approach its dividend policy according to the principles of stock valuation?

The newspaper reports that Bennington Enterprises earned $34 million this year and its return on equity (ROE) is 16 percent. The company retains 80 percent of its earnings. What are the company's expected earnings for next year?

Antiques R Us, a mature manufacturing firm, just paid a dividend of $9. The company's management expects to reduce the dividend by 4 percent per year indefinitely. If you require an 11 percent return on this stock, what would you pay for a share today?

What is the primary function of a stock exchange like the NYSE or NASDAQ in the secondary market?

The Stambaugh Corporation currently has earnings per share of $9.40, has no growth, and pays out all earnings as dividends. It is considering a new two-year project that requires an investment of $1.95 per share in one year. This project will increase earnings by $2.75 in Year 2 and $3.05 in Year 3. If investors require a 12 percent return, what is the value per share of the company's stock if it does NOT undertake the investment?

Continuing with the Stambaugh Corporation from the previous question, which has a cash cow value of $78.33 per share. If the company undertakes the new project (investing $1.95 in Year 1 to get $2.75 in Year 2 and $3.05 in Year 3), what is the new value per share?

In stock market reporting, if a stock quote shows a dividend of $0.82 and a yield of 1.1 percent, what is the approximate current stock price?

What is the primary reason that firms with high growth rates, such as technology companies, often pay low or no dividends?

The Starr Co. just paid a dividend of $2.15 per share. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. If investors require a return of 11 percent, what will the stock price be in three years?

For a stock valued using the constant growth model, what is the relationship between the dividend growth rate (g) and the capital gains yield?

ECY, Inc. stock currently sells for $63.50 per share, and its next dividend payment will be $3.20 per share. If the dividends are anticipated to maintain a constant growth rate forever, what is the required rate of return on the stock?

Why is an analyst's estimate of the dividend growth rate (g) considered highly critical when valuing a stock with the constant growth model?

What is the key feature of a 'hybrid market' like the NYSE?

White Wedding Corporation will pay a $2.65 per share dividend next year and pledges to increase its dividend by 4.75 percent per year indefinitely. If you require a return of 11 percent on your investment, how much would you pay for the stock today?

If a company has a dividend yield of 4.3 percent and is expected to maintain a constant 6.4 percent growth rate in its dividends, what is the required return on the company’s stock?

What is meant by the 'inside quotes' for a NASDAQ-listed security?

If a company uses a more conservative accounting method like LIFO inventory accounting in an inflationary environment, what is the likely effect on its reported earnings and its PE ratio, compared to a firm using FIFO?

In valuing an entire firm, a company's net cash flow for Year 6 is projected to be $104.72 million and is expected to grow at 6 percent per year thereafter. If the appropriate discount rate is 16 percent, what is the present value of all cash flows from Year 6 onward, as of the end of Year 5?

The stock of a firm with no growth opportunities sells for $100 per share. The firm has an opportunity to invest in a project with a per-share NPV of $10. What is the stock price after the firm commits to this new project?

What is the term for the ratio of a stock's price to its earnings per share?

Which of the following would an analyst find on Level 2 of the NASDAQ information access system that is not available on Level 1?

Metallica Bearings, Inc., will pay no dividends for the next nine years. In Year 10, it will pay a dividend of $15 per share and will increase the dividend by 5.5 percent per year thereafter. If the required return is 13 percent, what is the current share price?

A firm has an ROE of 13 percent and a retention ratio of 70 percent. What is its earnings growth rate, g?