Assets 30,000,000 Liabilities

Preferred Stock
Common Stock ($12 par; 100,000 shares outstanding)
Paid-in capital
Retained earnings

Stock Price
A
Assets 30,000,000 Liabilities
Preferred Stock
Common Stock ($4 par; 300,000 shares outstanding)
Paid-in capital
Retained earnings

Stock Price
B
Assets $30,000,000 Liabilities
Common Stock
Preferred Stock

Paid-in Capital
Retained Earnings
 14,000,000
1,000,000
1,200,000
1,800,000
12,000,000

$60

14,000,000
1,000,000
1,200,000
1,800,000
12,000,000

$20

$14,000,000
$1,320,000
$1,000,000
($12 Par, 110,000 shares outstanding)
$2,280,000
$11,400,000
TOTAL LIAB&EQUITY $30,000,000
Shares Issued: 10,000
New Shares Market Value: $600,000
Transfer to Common Stock: $120,000
Transfer to Paid-In Capital: $480,000

Original Market Value Pre-Dividend: $6,000,000

New Stock Price: $54.55
Book Method $54.55
The required rate of return represents the riskiness of the investment
being made; the rate of return will reflect the compensation that the
investor receives for the risk input. The expected rate of return is the
return that the investor expects to receive once the investment is made.
Stock price is the market value of the share i.e. the price at
which the share is trading in the stock market and is
determined by market forces. On the other hand, value of
the stock is the intrinsic value of the stock determined
through the net assets of the firm. They are equal when the
net assets are reflected of the current market prices then
the value of the stock reflects the market prices.
D1 = $1.05 D1 = $1.06 D1 = $1.05
k= 10% k= 10% k= 9%
g= 5% g= 6% g= 5%

Price (P) = $21.00 Price (P) = $26.50 Price (P) = $26.25

It is undervalued as it is selling for less than it shou
t is selling for less than it should.
D1 = $1.07
k= 12%
g= 7%

Price (P) = $21.40 Yes they will be interested because it is priced below its actual value. The maximum amount should be $
maximum amount should be $21.40 as it is the closest amount that is still under its actual value.
D1 = $0.80 D1 = $0.96 D1 = $1.00
k= 8% k= 8% k= 10%
g= 4% g= 4% g= 4%

Price (P) = $20.00 Price (P) = $24.00 Price (P) = $16.67 If inflation rises

WRONG
A)
eps 2
payout 40%
dividend 0.8
growth 4%
rrr 8%
D1 0.83

value 20.8%
A) 1 2
18.50% 12.90%
B) d0 1
D1: $1.00 beta 1.5
G: 5% rf 8%
Price: $10.00 rm 15%
RRR: 15.00% rrr 18.50%
It is not because it a lower RR than what it should be. growth 5%
C) d1 1%
D1: $1.00 value 8%
G: 10% good buy no
Price: $30.00 growth 10%
RRR: 13.33% 1%
Yes because it is a higher RR than the original RR. 12.94
D)
D1: $1.00
G: 10%
Price: $30.00
RRR: 13.33%
No because it is quite a bit lower than the 18.50%.
D= $ 1.40
D1 = $ 1.47
k= 9.02% 8%
g= 5%

Price = $36.57 Yes because it is priced lower than it is actually valued.

D0 1.4
growth rat 5%
d1 1.47
beta 1.34
risk free 1.40%
market rat 8%
rrr 10.24%

value 28.03
Rs = 10%
G1 = 4%
G2 = 4%
G3 = 4%
G4+ = 4%

Year PV D0 =
1 ($1.82) <--- D1 = $1.20
2 ($2.48) <--- D2 = $2.00
3 ($3.38) <--- D3 = $3.00
P0 ($56.35) <--- P3 = $4.50
Price = ($64.03) $75.00
Stock Ford META ET
p/e 4.04 10.29 9.18
p/b 1.07 2.75 1.09
p/s 0.32 3 0.41
peg 0.28 1.52 N/A
required return = risk rate + beta(market rate - risk rate)
12.7

Rs = 12.7%
G1 = 30%
G2 = 30%
G3 = 30%
G4+ = 5%

Year PV D0 =
1 ($2.22) <--- D1 = $2.50
2 ($2.56) <--- D2 = $3.25
3 ($2.79) <--- D3 = $4.00
4 D4 = $4.20

P0 ($38.11) <--- P3 = $54.55

Price = ($45.68)