Question 1

Pacific Storage expects to have earnings per share of $5.25 in 2005, and $5.65 in 2006. The average price-earnings ratio for General industry is 10X (times). Pacific Storage has traditionally had a P/E ratio 12% higher than the industry, and in 2005 it is expected to be 15% higher than the industry. Calculate the expected price of Pacific's stock price in 2005 and 2006, based on expectations of EPS and P/E ratios.

Accepted Answer

The answer of Pacific Storage expects to have earnings per...

Question 2

Between 1926 and 2009, the mean return of large company stocks was:

Accepted Answer

Between 1926 and 2009, the mean return for large company stocks was 10.4%.

Question 3

Widji Outfitters is expected to pay a dividend (D₁) of $1.00 next year, with an expected constant growth in dividends of 5%. The required rate of return is 11%. a) Calculate the present value of this stock. b) What will be the new price of this stock if the discount rate rises to 12%? c) What will be the new price of this stock if the discount rate falls to 10%?

Accepted Answer

The answer of Widji Outfitters is expected to pay a...

Question 4

If the company's profit margin is constant over time, the number of common shares remains the same, and the dividend payout ratio stays the same, the price to sales ratio, the price to earnings ratio and the price to book value ratio should:

Accepted Answer

If the profit margin, number of common shares, and dividend payout ratio remain constant, then the company's earnings and book value per share should also remain constant over time. This means that the price to earnings ratio and price to book value ratio should also remain relatively constant. Additionally, since the company's revenue (sales) is also assumed to be constant, the price to sales ratio should also provide a similar valuation. Therefore, all three ratios should provide similar valuations for the company's stock value.

Question 5

Security analysts following the Witczak Corporation use a simplified income-statement method of forecasting. Assume that current sales are $30 million, and are expected to grow by 10.5% in year 1 and 2. The after-tax profit margin is projected at 7% in year 1, and 7.2% in year 2. The number of shares outstanding is anticipated to be 450,000 for year 1, and 500,000 for year 2. Calculate the project earnings per share for the next two years.

Accepted Answer

The answer of Security analysts following the Witczak Corporation use...

Question 6

Tate Realty is expected to pay a dividend (D₁) of $3.00 next year, with the growth in dividends expected to remain constant at 5%. The required rate of return, K_e, is 10%. Calculate P₀.

Accepted Answer

The answer of Tate Realty is expected to pay a...

Question 7

If the company's profit margin is constant over time, and the number of shares of stock remains the same, the price to sales ratio and the price to earnings ratio:

Accepted Answer

If the company's profit margin is constant over time, and the number of shares of stock remains the same, then the earnings and sales growth rates should be the same. Therefore, both the price to sales ratio and the price to earnings ratio should provide similar valuations for the company's stock value. However, it's important to note that changes in profit margin or the number of shares can impact the relationship between these ratios.

Quiz 7: Valuation of the Individual Firm

Between 1926 and 2009, the mean return of large company stocks was:

If the company's profit margin is constant over time, the number of common shares remains the same, and the dividend payout ratio stays the same, the price to sales ratio, the price to earnings ratio and the price to book value ratio should:

Tate Realty is expected to pay a dividend (D1) of $3.00 next year, with the growth in dividends expected to remain constant at 5%. The required rate of return, Ke, is 10%. Calculate P0.

If the company's profit margin is constant over time, and the number of shares of stock remains the same, the price to sales ratio and the price to earnings ratio:

Tate Realty is expected to pay a dividend (D₁) of $3.00 next year, with the growth in dividends expected to remain constant at 5%. The required rate of return, K_e, is 10%. Calculate P₀.