Sample Problems Chapter 9

Transcription

1 Sample roblem Chapter 9 Title: referred tock (olve for value) 1. Timele Corporation iued preferred tock with a par value of $7. The tock promied to pay an annual dividend equal to 19.% of the par value. If the appropriate dicount rate for thi tock i 1.%, what i the value of the tock? a. $1,33. b. $ c. $ d. $1, e. $1,56.89 Title: referred tock (olve for req. return) 2. Forever, Inc.' preferred tock ha a par value of $1, and a dividend equal to 13.% of the par value. The tock i currently elling for $97.. What dicount rate i being ued to value the tock? a. 15.8% b % c % d % e. 12.1% Title: referred tock (olve for dividend) 3. Here and After Corporation plan a new iue of preferred tock. Similar rik tock currently offer an annual return to invetor of 17.%. The company want the tock to ell for $569. per hare. What annual dividend mut the company offer? a. $ b. $3,347.6 c. $17.37 d. $96.73 e. $3,89.34 Title: Contant Growth Model (old div) 4. You are conidering buying common tock in Grow On, Inc. The firm yeterday paid a dividend of $5.2. You have projected that dividend will grow at a rate of 8.% per year indefinitely. If you want an annual return of 2.%, what i the mot you hould pay for the tock now? a. $28.8 b. $43.33 c. $26. d. $46.8 e. $51.13 Title: Contant Growth Model (new div) 5. You are conidering buying common tock in Grow On, Inc. You have projected that the next dividend the company will pay will equal $4. and that dividend will grow at a rate of 5.% per year thereafter. If you would want an annual return of 13.% to invet in thi tock, what i the mot you hould pay for the tock now? a. $3.77 b. $52.5 c. $5. d. $32.31 e. $

2 Title: Supernormal growth (two year g()) 6. Growing, Inc. i a firm that i experiencing rapid growth. The firm yeterday paid a dividend of $7.5. You believe that dividend will grow at a rate of 24.% per year for two year, and then at a rate of 5.% per year thereafter. You expect the tock will ell for $46.57 in two year. You expect an annual rate of return of 18.% on thi invetment. If you plan to hold the tock indefinitely, what i the mot you would pay for the tock now? a. $89.91 b. $72.85 c. $49.61 d. $61.52 e. $83.6 Title: Supernormal growth (three year g()) 7. Growing, Inc. i a firm that i experiencing rapid growth. The firm yeterday paid a dividend of $5.6. You believe that dividend will grow at a rate of 24.% per year for three year, and then at a rate of 1.% per year thereafter. You expect that the tock will ell for $ in three year. You expect an annual rate of return of 18.% on thi invetment. If you plan to hold the tock indefinitely, what i the mot you would pay for the tock now? a. $17.92 b. $94.29 c. $ d. $79.63 e. $ Title: Supernormal growth (three growth rate - four year) 8. Growing, Inc. i a firm that i experiencing rapid growth. The firm yeterday paid a dividend of $8.. You believe that dividend will grow at a rate of 22.% per year for year one and two, 15.% per year for year three and four, and then at a rate of 9.% per year thereafter. If you expect an annual rate of return of 21.% on thi invetment, what i the mot you would pay for the tock now? a. $13.52 b. $16.7 c. $113.3 d. $98. e. $89.41 Title: Contant Growth Model (old div - CAM) 9. You are conidering buying common tock in Grow On, Inc. The firm yeterday paid a dividend of $4.7. You have projected that dividend will grow at a rate of 6.% per year indefinitely. The firm' beta i 2.39, the rik-free rate i 4.%, and the market return i 1.9%. What i the mot you hould pay for the tock now? a. $22.94 b. $32.44 c. $34.38 d. $24.31 e. $

3 Title: Contant Growth Model (new div - CAM) 1. You are conidering buying common tock in Grow On, Inc. You have projected that the next dividend the company will pay will equal $7.6 and that dividend will grow at a rate of 6.% per year thereafter. The firm' beta i.93, the rik-free rate i 6.1%, and the market return i 13.6%. What i the mot you hould pay for the tock now? a. $17.34 b. $ c. $58.1 d. $61.59 e. $ Title: Free cah flow (contant growth) 11. You are conidering buying common tock in Grow On, Inc. You have calculated that the firm' free cah flow wa $8.1 million lat year. You project that free cah flow will grow at a rate of 6.% per year indefinitely. The firm currently ha outtanding debt and preferred tock with a total market value of $9.22 million. The firm ha 1.2 million hare of common tock outtanding. If the firm' cot of capital i 25.%, what i the mot you hould pay per hare for the tock now? a. $35.97 b. $37.66 c. $45.19 d. $29.98 e. $49.37 Title: FCF(upernormal growth) 12. You are conidering buying common tock in Super Growth, Inc. You have calculated that the firm' free cah flow wa $6.2 million lat year. You project that free cah flow will grow at a rate of 2.% per year for the next three year, and then 6.% per year indefinitely thereafter. The firm currently ha outtanding debt and preferred tock with a total market value of $26.6 million. The firm ha 1.68 million hare of common tock outtanding. If the firm' cot of capital i 19.%, what i the mot you hould pay per hare for the tock now? a. $76.59 b. $42.12 c. $15.83 d. $7.75 e. $ N I ***V*** FV MT (7)(.19) N ***I*** V FV MT (1)(.13) N I V FV ***MT*** D k 5.2(1+.8).2.8 g

4 5. D1 4. k g D 1 7.5(1+.24) 9.3 D 2 9.3(1+.24) [11.532(1+.5)]/(.18-.5) CF CF1 9.3 CF I 18 NV 83.6 TI83: npv(18,,{9.3,14.672}) 7. D 1 5.6(1+.24) D (1+.24) D (1+.24) [1.677(1+.1)]/(.18-.1) CF CF CF CF I 18 NV TI83: npv(18,,{6.944,8.611, }) 8. D 1 8.(1+.22) 9.76 D (1+.22) D (1+.15) D (1+.15) [ (1+.9)]/(.21-.9) CF CF CF CF CF I 21 NV 98. TI83: npv(21,,{9.76,11.97, , }) 135

5 9. k i k RF + b i (k M k RF ) k i 4.% (1.9% - 4.%) 2.491% D k 4.7(1+.6) g k i k RF + b i (k M k RF ) k i 6.1% +.93(13.6% - 6.1%) 13.8% D1 7.6 k g Let V repreent the total value of the firm baed on the free cah flow model. V FCF k g 8.1(1+.6) Value of firm value of debt and preferred + value of equity value of equity value of equity value per hare (total value)/(number of hare) value per hare (35.97)/(1.2) FCF 1 6.2(1+.2) 7.44 FCF (1+.2) FCF (1+.2) [1.7136(1+.6)]/(.19-.6) CF CF CF CF I 19 NV TI83: npv(19,,{7.44,8.928,98.736}) Value of firm value of debt and preferred + value of equity value of equity value of equity value per hare (total value)/(number of hare) value per hare (44.155)/(1.68)