FINANCIAL MANAGEMENT

CHAPTER 4: VALUING COMMON STOCK

Question 1: Assume General Electric (GE) has about 10.3 billion shares outstanding
and the stock price is $37.10. Also assume the P/E ratio is about 18.3. Calculate the
market capitalization for GE.
Question 2: Company XYZ reported earnings per share of $5 last year and paid $1
in dividends. Caculate the dividend payout ratio and plowback ratio.
Question 3: The Wall Street Journal quotation for a company has the following values:
Div: $1.12, PE: 18.3, Close: $37.22. Calculate the dividend pay out ratio and plowback
ratio for the company (Approximately).
Question 4: If Fledgling Electronics is selling for $100 per share today and is expected
to sell for $110 one year from now, what is the expected return if the dividend one year
from now is forecasted to be $5.00?
Question 5: Super Computer Company's stock is selling for $100 per share today. It
is expected that this stock will pay a dividend of 6 dollars per share, and then be sold
for $114 per share at the end of one year. Calculate the expected rate of return for the
shareholders.
Question 6: Current forecasts are for XYZ Company to pay dividends of $3, $3.24,
and $3.50 over the next three years, respectively. At the end of three years you
anticipate selling your stock at a market price of $94.48. What is the price of the stock
given a 12% expected return?
Question 7: Deluxe Company expects to pay a dividend of $2 per share at the end of
year 1, $3 per share at the end of year 2 and then be sold for $32 per share. If the
required rate on the stock is 15%, what is the current value of the stock?
Question 8: Otobai Motor Company is currently paying a dividend of $3.23 per year.
The dividends are expected to grow at a rate of 12% for the next three years and then
a constant rate of 7% thereafter. What is the expected dividend per share in year 6?
Question 9: SEAN Co. has just now paid a dividend of $5.83 per share (D0); the
dividends are expected to grow at a constant rate of 5% per year forever. If the
required rate of return on the stock is 11.5%, what is the current value on stock, after
paying the dividend?
Question 10: Consider the following three stocks:
a) Stock A is expected to provide a dividend of $10 a share forever.
b) Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend
growth is expected to be 4% a year forever.
c) Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend
growth is expected to be 20% a year for five years (i.e., until year 6) and zero
thereafter. If the market capitalization rate for each stock is 10%, which stock
is the most valuable? What if the capitalization rate is 7%?

GVTH: LE BAO THY 1

 FINANCIAL MANAGEMENT

Question 11:
The AIA Co. has just paid a dividend of $3.62 per share. The dividends are expected
to grow at 25% per year for the next three years and at the rate of 5% per year
thereafter. If the required rate of return on the stock is 18%(APR), what is the current
value of the stock?
Question 12:
Will Co. is expected to pay a dividend of $2 per share at the end of year -1(D1) and
the dividends are expected to grow at a constant rate of 4% forever. If the current price
of the stock is $20 per share calculate the expected return or the cost of equity capital
for the firm.
Question 13:
Super Computer Company's stock is selling for $100 per share today. It is expected
that this stock will pay a dividend of 8.5 dollars per share, and then be sold for $124
per share at the end of one year. Calculate the expected rate of return for the
shareholders.
Question 14: Our company forecasts to pay a $8.33 dividend next year, which
represents 100% of its earnings. This will provide investors with a 15% expected
return. Instead, we decide to plowback 40% of the earnings at the firm’s current return
on equity of 25%. What is the value of the stock before and after the plowback
decision?
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THE END

GVTH: LE BAO THY 2