Negative growth stock
Swinton Mining has seen its business slowly wind down. It recently paid a dividend of $1.80 per share, but analysts expected the dividend to decrease by 2% per year. The risk free rate is 6.0% and the market risk premium is 5.0%. If Swinton's beta is 0.6 and the market is in equilibrium, what is the value of its stock?
? $11.28
? $13.29
? $16.04
? $10.92
? $12.80
What is Swinton Mining's current expected dividend yield?
? 12.00%
? 11.00%
? 13.00%
? 13.50%
? 14.50%
You would expect Swinton Mining's dividend yield to?
? Decrease
? Increase
? Stay the Same
What is Swinton's expected stock price in one year?
? $15.03
? $12.29
? $15.72
? $12.76
? $11.60
Swinton Mining is a negative growth stock its dividend is declining each year, and so is its stock price. Would a rational investor ever consider investing in Swinton Mining?
? Yes
? No
2. Non-Constant growth stock and dilution
Portman Industries just paid a dividend of $2.00 per share. Portman expects the coming year to be very good, and its dividend is expected to grow by 15% over the year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 6.1%. The risk free rate is 6% and the market risk premium is 4%. If Portman's beta is 1.1, what is the current intrinsic value of the firm's stock? Assume the market is in equilibrium.
? $52.27
? $53.49
? $56.10
? $57.50
? $54.76
Portman has 500,000 shares outstanding and Judy Davis, an investor, holds 40,000. Suppose Portman is considering issuing 100,000 new shares at a price of $50.00 per share. If the new shares are sold to outside investors, how much will Judy's investment in Portman be diluted on a per-share basis?
? $0.80
? $1.25
? $0.38
? $0.58
? $1.01
3. Corporate Value Model
Ward Pharmaceuticals is expected to generate free cash flow of $150 million this year (FCF1=$150 million), and FCF is expected to grow at a rate of 20% over the following two years (FCF2 and FCF3) After the third year however, FCF is expected to grow at a constant rate of 5% per year, forever (FCF4). If Ward's weighted average cost of capital (WACC) is 10.9%, what is Wards current total firm value?
? $3,258 Million
? $2.862 Million
? $2,820 Million
? $2,999 Million
? $2,778 Million
Ward's debt has a market value of $1,800 million and Ward has no preferred stock. If Ward has 80 million shares of common stock outstanding, what is Ward's estimated intrinsic value per share of common stock?
? $12.22
? $14.99
? $12.74
? $18.23
? $14.40
4. Church Inc. Is presently enjoying relatively high growth
Church Inc. Is presently enjoying relatively high growth because of a surge in the demand for its new product, management expects earnings and dividends to row at a rate of 40% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, that is g = 0. The company's last dividend D0= $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk free rate is 3.00%. What is the current price of the common stock?
? $53.97
? $48.22
? $47.77
? $44.24
? $51.31
5. Nachman Industries just paid a dividend of D0 = $4.75. Analysts expect the company's dividend to grow by 30% this year, by 10% in year 2, and at a constant rate of 5% in year 3 and thereafter. The required return on this low risk stock is 9.00%. What is the best estimate of the stock's current market value?
? $150.15
? $161.46
? $175.99
? $132.39
? $196.98
6. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $2.50 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell?
? $30.00
? $46.54
? $38.46
? $41.54
? $44.23
7. Gupta Corporation is undergoing a restructuring, and its free cash flows are expected to vary considerably during the next few years. However, FCF is expected to be $60.00 million in year 5 and the FCF growth rate is expected to be a constant 6.5% beyond that point. The weighted average cost of capital is 12.0%. What is the horizon (or terminal) value (in millions) at t = 5?
? $1,011
? $1,162
? $871
? $1,383
? 1,301
8. Stocks A and B have the following data
|
|
A
|
B
|
|
Beta
|
1.10
|
0.90
|
|
Constant Growth Rate
|
7.00%
|
7.00%
|
The market risk premium is 6.0% and the risk free rate is 6.4%. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is correct?
? Stock A must have a higher dividend yield than Stock B
? Stock B's dividend yield equals it's expected dividend growth rate
? Stock B could have the higher expected return
? Stock A must have a higher stock price than Stock B
? Stock B must have a higher required return
9. Which of the following statements is correct?
? To implement the corporate valuation model, we discount net operating profit after taxes at the weighted average cost of capital
? To implement the corporate valuation model, we discount projected free cash flows at he weighted average cost of capital
? To implement the corporate valuation model we discount projected net income at the weighted average cost of capital
? To implement the corporate valuation model, we discount projected free cash flows at the cost of equity capital?
? The corporate valuation model requires the assumption of a constant growth rate in all years