50. High Tech Chip Company is expected to have EPS in the coming year of $2.50. The expected ROE is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 70%, the growth rate of dividends should be
A. 5.00%B. 6.25%C. 6.60%D. 7.50%E.8.75%12.5% X 0.7 = 8.75%.
Difficulty: Easy
51. A company paid a dividend last year of $1.75. The expected ROE for next year is 14.5%. An appropriate required return on the stock is 10%. If the firm has a plowback ratio of 75%, the dividend in the coming year should be
Difficulty: Moderate
18-27

52. High Tech Chip Company paid a dividend last year of $2.50. The expected ROE for next year is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 60%, the dividend in the coming year should be
Difficulty: Moderate

Chapter 18 - Equity Valuation Models
53. Suppose that the average P/E multiple in the oil industry is 20. Dominion Oil is expected to have an EPS of $3.00 in the coming year. The intrinsic value of Dominion Oil stock should be _____.
Difficulty: Easy
54. Suppose that the average P/E multiple in the oil industry is 22. Exxon Oil is expected to have an EPS of $1.50 in the coming year. The intrinsic value of Exxon Oil stock should be _____.
A.$33.00B. $35.55C. $63.00D. $72.00E. none of the above
22 X $1.50 = $33.00.
Difficulty: Easy
18-29

55. Suppose that the average P/E multiple in the oil industry is 16. Mobil Oil is expected to have an EPS of $4.50 in the coming year. The intrinsic value of Mobil Oil stock should be _____.
16 X $4.50 = $72.00.
Difficulty: Easy

Chapter 18 - Equity Valuation Models
56. Suppose that the average P/E multiple in the gas industry is 17. KMP is expected to have an EPS of $5.50 in the coming year. The intrinsic value of KMP stock should be _____.
Difficulty: Easy
57. An analyst has determined that the intrinsic value of HPQ stock is $20 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 25, then it would be reasonable to assume the expected EPS of HPQ in the coming year is ______.
Difficulty: Easy
18-31

58. An analyst has determined that the intrinsic value of Dell stock is $34 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 27, then it would be reasonable to assume the expected EPS of Dell in the coming year is ______.
A. $3.63B. $4.44C. $14.40D.$1.26E. none of the above$34(1/27) = $1.26.
Difficulty: Easy

Chapter 18 - Equity Valuation Models