Question

Solve these questions with formula (answer quantitatively) :

a. Current earning per share = $6
Current dividend per share = $2.4
Current market price per share = $35
Required return on the stock = 15%
Expected growth rate of earnings and dividends = 8%
Compared with the company's trailing P/E, the P/E based on Gordon growth dividend discount model is (The same/Higher/Lower)

b. Current dividend per share = $3
Historical annual dividend growth rate = 4%
Expected annual dividend growth rate for the next three years = 8%
Expected stock value per share at the end of year 3 = $33
If the investor's required rate of return is 15%, the current estimate of the intrinsic value per share will be ?

c. To estimate the intrinsic value of a company using justified P/E ratio approach :
Next year's earning per share = $3
Dividend payout ratio = 60%
Required rate of return = 10%
ROE = 12.5%
The intrinsic value of the company's stock is?

d. The Shoe Box will not pay a dividend for the next 2 years. The following 2 years, it will pay an annual dividend of $1 per share. Starting in year 5, the dividends will increase by 4% anually. The discount rate is 8%. What is the value of this stock today?

e. Current price per share = $54
Current annual dividend per share = $2.5
Annual dividend growth rate for years 1-4 = 12%
Annual dividend growth rate for years 5+ = 6%
Required rate of return = 15%
Based on DDM, the stock is most likely (overvalued/fairly/undervalued? , answer quantitatively !

f. Chris Rogers forecasted that Android Inc shall pay its first dividend 2 years from now worth $1.5. For the year after that, it has been forecasted that a dividend of $2.2 shall be paid. This will grow a constant growth rate of 5%. The Risk free rate is 4%, market risk premium is 6% and beta is 1.2 . What is the value of the share of Android?

g. Heather Callaway, CFA, is concerned about the accuracy of her valuation of Crimson Gate, a fast growing telecommunications equipment company that her firm rates as a top buy. Crimson currently trades at $134 per share, and Callaway has put together the following information of the stock :
Most recent dividend per share = $0.55
Growth rate, next 2 years = 30%
Growth rate , after 2 years = 12%
Trailing P/E = 25.6
Financial leverage = 3.4
Sales = $1198 per share
Asset turnover = 11.2
Estimated market rate of return = 13.2%
Callaway's employer, Bates Investment, likes to use a company's sustainable growth rate as a key input to obtaining the required rate of return for the company's stock. Crim son's sustainable growth rate is ?

Answer 1