Chapter 7: Pages 218-221 . Problems: 1, 7, 14, 22, 24
Chapter 10: Pages 326-332 . Problems: 6, 16-18
Stock Basics 1. If you own 15,000 shares of stock of Nike and it pays a dividend of $0.21 per share, then what is the total dividend you will receive?
Anle Corporation has a current stock price of $20 and is expected to pay a dividend of $1 in one year. Its expected stock price right after paying that dividend is $22. a. What is Anle’s equity cost of capital? b. How much of Anle’s equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain?
14. . Dorpac Corporation has a dividend yield of 1.5%. Its equity cost of capital is 8%, and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpac’s dividends? b. What is the expected growth rate of Dorpac’s share price?
22. Shatin Intl. has 10 million shares, an equity cost of capital of 13% and is expected to pay a total dividend of $20 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $10 million of stock each year as well. How much will its stock price increase?
24. . Tolo Co. plans the following repurchases: $10 million in one year, nothing in two years, and $20 million in three years. After that, it will stop repurchasing and will issue dividends totaling $25 million in four years. The total paid in dividends is expected to increase by 3% per year share today? thereafter. If Tolo has 2 million shares outstanding and an equity cost of capital of 11%, what is its price per
6. 6. Heavy Metal Corporation is expected to generate the following free cash flows over the next five years:
Year 1 2 3 4 5
FCF ($ million) 53 68 78 75 82
After 5 years, the free cash flows are expected to grow at the industry average of 4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14%: a. Estimate the enterprise value of Heavy Metal. b. If Heavy Metal has no excess cash, debt of $300 million, and 40 million shares outstanding, estimate its share price.
16. After researching the competitors of EJH Enterprises, you determine that most comparable firms have the following valuation ratios (see for the data in Excel format): Comp 1 Comp 2 Comp 3 Comp 4 EV/EBITDA 12 11 12.5 10 P/E 19 18 20 17