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Home Work - Stock Valuation

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16 views1 page

Home Work - Stock Valuation

Uploaded by

An Do
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Home work

1. IBM’s stock dividend at the end of this year is expected to be $2.15, and it is expected to
grow at 11.2% per year forever. If the require rate of return on IBM stock is 15.2% per
year,
a. what is intrinsic value?
b. If IBM’s current market price is equal to this intrinsic value, what is the next year’s
expected price?
c. If an investor was to buy IBM stock now and sell it after receiving the $2.15 dividend
a year from now, what is expected capital gain (i.e., price appreciation) in percentage
term? What is the dividend yield, and what would be the holding-period return?
2. If a firm’s ROE is 20%, current earnings (E1) will be $5 per share and k= 12.5%. Let
calculate:
a. The price of a firm with plowback ratio of 0.6%
b. What if ROE is 10%, which is less than the market capitalization rate? Compare the
firm’s price in this instance to that of a firm with the same ROE and E1, but a
plowback ratio of b = 0.
3. ABC stock has an expected of ROE of 12% per year, expected earnings per share of $2 and
expected dividends of $1.5 per share. Its market capitalization rate is 10% per year.
Calculate:
a. Expected growth rate, its price and its P/E ratio
b. If the plowback rate were .4, what would be the firm’s expected dividend per share,
growth rate, price, P/E?

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