Question 1

The Diamond Outlet has current earnings per share of $2.20 and an expected earnings growth rate of 2.3 percent.The required return on the stock is 14 percent and the current book value per share is $15.25.What is the current market value of this stock?

Accepted Answer

11ea6d0e_c3fd_a0c5_b3c7_d3b8506c5cb5_TB1223_00

Question 2

A firm has a current book value per share of $21.10 and a market price per share of $37.57.Next year's earnings are expected to be $5.60 per share and the expected earnings growth rate is 2.5 percent.What is the required rate of return on this stock?

Accepted Answer

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Question 3

Quality Home Made Ice Cream has plans to pay decreasing annual dividends of $1.60,$1.50,and $1.35 over the next three years,respectively.After that,the firm will increase the dividend by 5 percent each year.What is the value of this stock today at a discount rate of 11 percent?

Accepted Answer

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Question 4

Perry Adventures last annual dividend was $0.70 a share.The firm will increase the dividend by 5 percent for the next 4 years and thereafter increase the dividend by 3 percent annually.What is this stock worth today if the required return is 10 percent?

Accepted Answer

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Question 5

The Retail Box has a historical P/CF ratio of 21.5.The current CFPS is $1.42 and the projected CFPS growth rate is 5.6 percent.The current EPS is $1.02.What is the expected price of this stock one year from now?

Accepted Answer

Expected price = $1.42 × (1 + .056) × 21.5 = $32.24

Question 6

A firm has net income of $198,500 and total equity of 1.15 million.There are 220,000 shares of stock outstanding at a price per share of $14.80.What is the firm's price-earnings ratio?

Accepted Answer

P/E = $14.80/($198,500/220,000) = 16.40

Question 7

Miller's Farm has 120,000 shares of stock outstanding,sales of $850,000,and net income of $55,000.Financial analysts believe the price-earnings ratio for this firm should be 15.8.Given this information,what should be the current stock price?

Accepted Answer

P₀ = ($55,000/120,000) × 15.8 = $7.24

Question 8

Electronics Galore has historically had a P/E ratio of 22.1.This ratio is considered a good estimate of the future ratio.The firm currently has EPS of $1.78.These earnings are expected to increase by 5.0 percent next year.What is the expected price of this stock one year from now?

Accepted Answer

Expected price = $1.78 × (1 + .05) × 22.1 = $41.30

Question 9

Leslie Apparel has a current book value per share of $5.15 and current earnings per share of $1.13.The required return is 14 percent and the expected earnings growth rate is 4.5 percent.What is one share of this stock worth today?

Accepted Answer

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Question 10

L.B.Jay has net income of $38,000,total assets of $437,000,total liabilities of $208,000,and a price-book ratio of 3.8.There are 60,000 shares of stock outstanding.What is the firm's price-earnings ratio?

Accepted Answer

P/E = {[($437,000 - $208,000)/60,000] × 3.8}/($38,000/60,000) = 22.90

Question 11

Newcomer Mills is a relatively new firm which will retain all of its earnings for the next four years.Four years from now,the firm expects to pay its first dividend of $0.25 a share.After that,it intends to increase the dividend by 4 percent annually.What is the value of this stock today at a discount rate of 12 percent?

Accepted Answer

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Question 12

Beach & Company reported net income of $40 million for last year.Depreciation expense totaled $18 million and capital expenditures came to $8 million.Free cash flow is expected to grow at a rate of 5% for the foreseeable future.Beach faces a 40% tax rate and has a 0.50 debt to equity ratio with $200 million (market value)in debt outstanding.Beach's equity beta is 1.25,the risk-free rate is currently 4.5% and the market risk premium is estimated to be 8%.What is the current total value of Beach & Company (in millions)?

Accepted Answer

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Question 13

The current book value per share of B.L.Black & Sons is $5.35 and the required return on the stock is 15.5 percent.The firm expects earnings per share of $2.25 next year with annual earnings growth of 4.5 percent.What is the current market value of this stock?

Accepted Answer

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Question 14

McKenzie,Inc.reported net income of $8.5 million for last year.Depreciation expense totaled $5 million and capital expenditures came to $2 million.Free cash flow is expected to grow at a rate of 2.5% for the foreseeable future.McKenzie faces a 40% tax rate and has a 0.50 debt to equity ratio with $20 million (market value)in debt outstanding.McKenzie's equity beta is 1.4,the risk- free rate is currently 5% and the market risk premium is estimated to be 7.5%.McKenzie has 10 million shares of common stock outstanding.What is the current value of a share of McKenzie stock?

Accepted Answer

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Question 15

Best Value Outlet recently announced that it intends to pay dividends of $0.40,$0.60,$0.75,and $1.00 per share over the next four years,respectively.After that,the plan is to increase the dividend by 3.5 percent annually.What is the current value of this stock if the applicable discount rate is 13.5 percent?

Accepted Answer

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Question 16

The Shoe Box will not pay a dividend for the next two years.The following two years,it will pay annual dividends of $1 per share.Starting in year 5,the dividends will increase by 4 percent annually.The discount rate is 8 percent.What is the value of this stock today?

Accepted Answer

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Question 17

Historically,Jones Trucking has had a P/E ratio of 14.6.The firm has current net income of $92,000 with 85,000 shares of stock outstanding.The EPS growth rate is 4.5 percent.What is the expected price of this stock one year from now?

Accepted Answer

Expected price = ($92,000/85,000) × (1 + 0.045) × 14.6 = $16.51

Question 18

The Satellite Shoppe has current sales per share of $10.55.The sales per share are expected to increase at an annual rate of 12 percent.The historical P/E ratio is 16.2 and the historical P/S ratio is 9.8.What is the expected price of this stock one year from now?

Accepted Answer

Expected price = $10.55 × (1 + 0.12) × 9.8 = $115.80

Question 19

Lambert Corporation reported net income of $60 million for last year.Depreciation expense totaled $20 million and capital expenditures came to $5 million.Free cash flow is expected to grow at a rate of 4.5% for the foreseeable future.Lambert faces a 40% tax rate and has a 0.45 debt to equity ratio with $255 million (market value)in debt outstanding.Lambert's equity beta is 1.30,the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%.What is the current total value of Lambert's equity (in millions)?

Accepted Answer

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Question 20

Standard,Inc.reported net income of $35 million for last year.Depreciation expense totaled $20 million and capital expenditures came to $7 million.Free cash flow is expected to grow at a rate of 6% for the foreseeable future.Stuart faces a 40% tax rate and has a 0.40 debt to equity ratio with $120 million (market value)in debt outstanding.Standard's equity beta is 1.25,the risk-free rate is currently 5% and the market risk premium is estimated to be 7.5%.What is the current value (in millions)of Standard's equity?

Accepted Answer

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Quiz 6: Common Stock Valuation