Question: 1. What is the value of a stock that has an expected dividend of $1.50 one year from now? The dividend is expected to grow at 4% per year. The required rate of return on the stock is based on CAPM: the beta is 1.2, the risk-free rate is 2.5% and the expected return on the market is 9%.
2. What is the value of a stock that just paid a dividend of $2.25 if the dividend is expected to grow by 12% for the next 3 years, 8% for years 4-6, and then 4% per year thereafter? The required rate of return on the stock is 11%.
3. What is the enterprise value of a firm with free cash flow for 2017 estimated at $450 million if the free cash flows are expected to grow by 10%, 7%, 5% for the subsequent 3 years and then grow at 3% per year thereafter? Assume the WACC for the firm is 9.5% and that you are doing the valuation as of the start of 2017 (i.e. Jan 1,2017).
4. What is the value per share for a firm with most recent free cash flow of $559 million if that free cash flow is expected to grow at a constant rate of 4%? Assume that the WACC is 11%, that the firm has $259 million in cash and it has $1.2 billion in debt outstanding. Finally, assume the firm has 111 million shares outstanding.