4) Company HTA had a free cash flow for the firm (FCFF) of
$1,500,000 last year. It is expected the FCFF will keep a
sustainable growth rate of 5%. The company has 2 million common
shares outstanding. In addition, the following information has been
gathered: Capital structure: D/E=0.2:0.8, Market value of Debt: VD
=$5,000,000; Required return on equity: kE =15% Cost of debt before
tax =6%, Tax rate: tc =25%; Determine the fair value of HTA
stock.
5) Company JUK has a ROE of 25% and the company will not pay
any dividend for the next 3 years. It is estimated that the company
will pay $2 dividend per share after three years and then to level
off to 5% per year forever.
The company has a beta of 2. Assume the risk-free interest
rate is 4%, and the market risk premium is 8%.
1. What is your estimate of the fair price of a share of the
stock?
2. If the market price of a share is equal to this intrinsic
value, what is the P/E ratio?
3. What do you expect its price to be 1 year from now? Is the
implied capital gain consistent with your estimate of the dividend
yield and the market capitalization rate?
6.MicroSense, Inc., paid $2 dividends per share last year. It
is estimated that the company s ROEs will be 12% and 10%,
respectively, next two years. The plowback rate in next two years
will be 0.6. It is expected that the dividends will grow at a
sustainable rate of 3% per year after two years. Assume that the
expected return on the market is 8%, the risk-free rate is 4%, and
the beta of the stock is 1.4. What is the fair price of the
stock?
7. An analyst uses the constant growth model to evaluate a
company with the following data for a company:
Leverage ratio (asset/equity): 1.8
Total asset turnover: 1.5
Current ratio: 1.8
Net profit margin: 8%
Dividend payout ratio: 40%
Earnings per share in the past year: $0.85
The required rate on equity: 15%
Based on an analysis, the growth rate of the company will
drop by 25 percent per year in the next two years and then keep it
afterward. Assume that the company will keep its dividend policy
unchanged.
1. Determine the growth rate of the company for each of next
three years.
2. Use the multi-period DDM to estimate the intrinsic value
of the company s stock.
3. Suppose after one year, everything else will be unchanged
but the required rate on equity will decrease to 14%. What would be
your holding period return for the year?
Other samples, services and questions:
When you use PaperHelp, you save one valuable — TIME
You can spend it for more important things than paper writing.
