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Exam 13: Equity Valuation

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Question 21

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Generally speaking,as the firm progresses through the industry life cycle you would expect the PVGO to ________ as a percent of share price.

A) increase
B) decrease
C) stay the same
D) no typical pattern can be expected

E) A) and B)
F) A) and C)

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Question 22

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A firm reports EBIT of $100 million.The income statement shows depreciation of $20 millions.If the tax rate is 35% and total capital expenditures and increases in working capital total $10 million,what is the free cash flow to the firm?

A) $57
B) $65
C) $75
D) $95

E) None of the above
F) B) and D)

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Question 23

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Annie's Donut Shops,Inc.has expected earnings of $3.00 per share for next year.The firm's ROE is 18% and its earnings retention ratio is 60%.If the firm's market capitalization rate is 12%,what is the value of the firm excluding any growth opportunities?

__________ is the amount of money per common share that could be realized by breaking up the firm,selling its assets,repaying its debt,and distributing the remainder to shareholders.

Ace Ventura,Inc.has expected earnings of $5 per share for next year.The firm's ROE is 15% and its earnings retention ratio is 40%.If the firm's market capitalization rate is 10%,what is the present value of its growth opportunities?

You are considering acquiring a common share of Sahali Shopping Center Corporation that you would like to hold for one year.You expect to receive both $1.25 in dividends and $35 from the sale of the share at the end of the year.The maximum price you would pay for a share today is __________ if you wanted to earn a 12% return.

Caribou Gold Mining Corporation is expected to pay a dividend of $4 in the upcoming year.Dividends are expected to decline at the rate of 3% per year.The risk-free rate of return is 5% and the expected return on the market portfolio is 13%.The stock of Caribou Gold Mining Corporation has a beta of -0.50.Using the CAPM,the return you should require on the stock is _________.

Firms with higher expected growth rates tend to have P/E ratios that are ___________ the P/E ratios of firms with lower expected growth rates.

Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now.The beta of Westsyde Tool Company's stock is 1.20.Using the CAPM,an appropriate required return on Westsyde Tool Company's stock is _________.

An underpriced stock provides an expected return which is ____________ the required return based on the capital asset pricing model (CAPM) .

Gagliardi Way Corporation has an expected ROE of 15%.If it pays out 30% of it earnings as dividends,its dividend growth rate will be _____.

Each of two stocks,A and B,are expected to pay a dividend of $7 in the upcoming year.The expected growth rate of dividends is 6% for both stocks.You require a return of 10% on stock A and a return of 12% on stock B. Using the constant growth DDM, the intrinsic value of stock A _________.

The price-to-sales ratio is probably most useful for firms in which phase of the industry life cycle?

If a firm has a free cash flow equal to $50 million and that cash flow is expected to grow at 3% forever,what is the total firm value given a WACC of 9.5%?

A firm has current assets which could be sold for their book value of $10 million.The book value of its fixed assets is $60 million but they could be sold for $95 million today.The firm has total debt at a book value of $40 million but interest rate changes have increased the value of the debt to a current market value of $50 million.This firm's market to book ratio is ________.

The free cash flow to the firm is reported as $275 million.The interest expense to the firm is $60 million.If the tax rate is 35% and the net debt of the firm increased by $33,what is the free cash flow to the equity holders of the firm?

The constant growth dividend discount model (DDM) can be used only when the ___________.

You wish to earn a return of 11% on each of two stocks,A and B. Stock A is expected to pay a dividend of $3 in the upcoming year while stock B is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends for both stocks is 4%. Using the constant growth DDM, the intrinsic value of stock A _________.

Which of the following valuation measures is often used to compare firms which have no earnings?

The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%.Its expected ROE is 12% and its expected EPS is $5.00.If the firm's plow-back ratio is 50%,its P/E ratio will be _________.