Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
65. A stock is priced at $45 per share. The stock has earnings per share of $3 and a market
capitalization rate of 14%. What is the stock's PVGO?
66. A firm increases its dividend plowback ratio. All else equal, you know that _____________.
67. A firm has a stock price of $54.75 per share. The firm's earnings are $75 million, and the
firm has 20 million shares outstanding. The firm has an ROE of 15% and a plowback of 65%. What
is the firm's PEG ratio?
68. ART has come out with a new and improved product. As a result, the firm projects an ROE
of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share.
Investors expect a 12% rate of return on the stock.
At what price would you expect ART to sell?
69. ART has come out with a new and improved product. As a result, the firm projects an ROE
of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share.
Investors expect a 12% rate of return on the stock.
At what P/E ratio would you expect ART to sell?
70. ART has come out with a new and improved product. As a result, the firm projects an ROE
of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share.
Investors expect a 12% rate of return on the stock.
What is the present value of growth opportunities for ART?
71. ART has come out with a new and improved product. As a result, the firm projects an ROE
of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share.
Investors expect a 12% rate of return on the stock.
What price do you expect ART shares to sell for in 4 years?
72. The EBIT of a firm is $300, the tax rate is 35%, the depreciation is $20, capital
expenditures are $60, and the increase in net working capital is $30. What is the free cash flow to
the firm?
73. A firm reports EBIT of $100 million. The income statement shows depreciation of $20
million. If the tax rate is 35% and total capital expenditures and increases in working capital total
$10 million, what is the free cash flow to the firm?
74. The free cash flow to the firm is $300 million in perpetuity, the cost of equity equals 14%,
and the WACC is 10%. If the market value of the debt is $1 billion, what is the value of the equity
using the free cash flow valuation approach?
75. If a firm has a free cash flow equal to $50 million and that cash flow is expected to grow at
3% forever, what is the total firm value given a WACC of 9.5%?
76. The free cash flow to the firm is reported as $405 million. The interest expense to the firm
is $76 million. If the tax rate is 35% and the net debt of the firm increased by $50 million, what is
the free cash flow to the equity holders of the firm?
77. The free cash flow to the firm is reported as $275 million. The interest expense to the firm
is $60 million. If the tax rate is 35% and the net debt of the firm increased by $33 million, what is
the free cash flow to the equity holders of the firm?
78. The free cash flow to the firm is reported as $205 million. The interest expense to the firm
is $22 million. If the tax rate is 35% and the net debt of the firm increased by $25 million, what is
the approximate market value of the firm if the FCFE grows at 2% and the cost of equity is 11%?
79. The free cash flow to the firm is reported as $198 million. The interest expense to the firm
is $15 million. If the tax rate is 35% and the net debt of the firm increased by $20 million, what is
the approximate market value of the firm if the FCFE grows at 3% and the cost of equity is 14%?
80. Firm A has a stock price of $35, and 60% of the value of the stock is in the form of PVGO.
Firm B also has a stock price of $35, but only 20% of the value of stock B is in the form of PVGO.
We know that:
I. Stock A will give us a higher return than Stock B.
II. An investment in stock A is probably riskier than an investment in stock B.
III. Stock A has higher forecast earnings growth than stock B.
81. A firm is expected to produce earnings next year of $3 per share. It plans to reinvest 25%
of its earnings at 20%. If the cost of equity is 11%, what should be the value of the stock?
82. Next year's earnings are estimated to be $5. The company plans to reinvest 20% of its
earnings at 15%. If the cost of equity is 9%, what is the present value of growth opportunities?
83. Next year's earnings are estimated to be $6. The company plans to reinvest 33% of its
earnings at 12%. If the cost of equity is 8%, what is the present value of growth opportunities?
84. When Google's share price reached $475 per share, Google had a P/E ratio of about 68
and an estimated market capitalization rate of 11.5%. Google pays no dividends. Approximately
what percentage of Google's stock price was represented by PVGO?
85. A firm has a stock price of $55 per share and a P/E ratio of 75. If you buy the stock at this
P/E and earnings fail to grow at all, how long should you expect it to take to just recover the cost
of your investment?
86. In what industry are investors likely to use the dividend discount model and arrive at a
price close to the observed market price?
87. Estimates of a stock's intrinsic value calculated with the free cash flow methodology
depend most critically on _______.
88. The greatest value to an analyst from calculating a stock's intrinsic value is _______.
89. Which of the following valuation measures is often used to compare firms that have no
earnings?
