Question #1: Apply the residual income model to determine the intrinsic value of the stock for a firm with the financial data shown in this table.
| Current Assets |
$ 15,000,000.00 |
| Fixed-Assets |
$ 65,000,000.00 |
| Total Assets |
$ 80,000,000.00 |
|
|
| Current Liabilities |
$ 10,000,000.00 |
| Long-Term Debt |
$ 50,000,000.00 |
| Total Liabilities |
$ 60,000,000.00 |
|
|
| Stockholder's Equity |
$ 20,000,000.00 |
| Total Liabilities and Equity |
$ 80,000,000.00 |
|
|
| Market Price of Stock |
$ 28.50 |
| # Shares Outstanding |
$ 1,000,000.00 |
| PE |
20X |
| Dividend per Share |
$ 0.75 |
| Stock's Beta |
0.96 |
| Risk-free Rate |
4.50% |
| Market Return |
10.00% |
Question #2: Calculate the correlation between Stock A and Stock B.
|
Stock A |
Stock B |
Market |
| Beta |
1.07 |
0.75 |
1.00 |
| Yield |
12.05% |
9.85% |
11.35% |
| Std Dev |
15.64% |
12.63% |
14.11% |
Question #3: A stock just paid a dividend of $2.00. Due to the introduction of a proprietary product, the dividend growth rate is expected to be 30 percent for the next two years, 15 percent for years 3 and 4, and then return to a constant growth rate assumption of 4 percent thereafter. The required return on the stock is 18 percent. Calculate the current expected price of the stock.