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Reviewer-Stock Valuation
Reviewer-Stock Valuation
Reviewer-Stock Valuation
STOCK VALUATION
VALUATION OF STOCKS
The formula for the book value or net asset value approach is:
The computation of the value of the stock using this approach can be
illustrated using this formula:
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1
QUICKNOTES REVIEWER ON STOCK VALUATION
BY: ATTY. IVAN YANNICK SAROL BAGAYAO CPA, MBA
such stock. Considering that the computations may involve future cash flows,
appropriate discounting should be made to place these future cash flows to its
present value.
2
QUICKNOTES REVIEWER ON STOCK VALUATION
BY: ATTY. IVAN YANNICK SAROL BAGAYAO CPA, MBA
D1 to DTD = represent dividends to be received during the
non-constant growth phase
TV = terminal value (collection of constant growth phase
dividends)
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����
3
QUICKNOTES REVIEWER ON STOCK VALUATION
BY: ATTY. IVAN YANNICK SAROL BAGAYAO CPA, MBA
���1
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2. From the preceding number, what is the stock’s dividend yield today?
A. 6.35%
B. 7%
C. 11%
D. 5.08%
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4
QUICKNOTES REVIEWER ON STOCK VALUATION
BY: ATTY. IVAN YANNICK SAROL BAGAYAO CPA, MBA
� = �� + � �� − ��
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B. The last dividend paid by Insecurity Bank (IB) was P1.00. IB’s growth rate
is expected to be constant for 5% for 2 years, after which dividends are
expected to grow at a rate of 10% forever. SB’s required rate of return is 12%.
What is the current price of IB’s common stock?
A. P50.16
B. P2.68
C. P62.45
D. P47.77
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5
QUICKNOTES REVIEWER ON STOCK VALUATION
BY: ATTY. IVAN YANNICK SAROL BAGAYAO CPA, MBA
��
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� − ��
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�� =
��% − ��%
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�� = + +
(� + �) (� + �)� (� + �)��
��. �� ��. ��� ���. ����
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(� + ��%) (� + ��%) (� + ��%)�
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C. BenTen Corporation has projected Earnings Before Interest and Tax (EBIT)
for the next year of P600 million, with tax rate of 40%, Projected depreciation
expense, capital expenditures and increase in working capital for the next
year of P100 million, P200 million and P120 million, respectively. The capital
structure of the company is 40% for debt and 60% for equity. Its cost of equity
is 12 percent while cost of debt (YTM) is 11.66%. The company’s free cash
flow is expected to grow at a constant rate of 6 percent a year.
3. What is the market value of the company?
4. From the preceding number, if the market value of debt and preferred
stock is P1 billion and the stock price is P62.50 per share, what is the
number of outstanding shares?
A. 40,000,000 shares
B. 136,000,000 shares
C. approximately 21,333,333 shares
D. 6,400,000 shares
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6
QUICKNOTES REVIEWER ON STOCK VALUATION
BY: ATTY. IVAN YANNICK SAROL BAGAYAO CPA, MBA
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