C. $42.94 A firm has PVGO of 0 and a market capitalization rate of 12%. What is the firm's P/E ratio? B. 8.33 A firm has an earnings retention ratio of 40%. The stock has a market capitalization rate of 15% and an ROE of 18%. What is the stock's P/E ratio? B. 7.69 13-8
Chapter 13 - Equity Valuation A common stock pays an annual dividend per share of $1.80. The risk-free rate is 5 percent and the risk premium for this stock is 4 percent. If the annual dividend is expected to remain at $1.80 per share, what is the value of the stock? B. $20.00 Transportation stocks currently provide an expected rate of return of 15%. TTT, a large transportation company, will pay a year-end dividend of $3 per share. If the stock is selling at $60 per share, what must be the market's expectation of the constant growth rate of TTT dividends? B. 10% A stock is priced at $45 per share. The stock has earnings per share of $3.00 and a market capitalization rate of 14%. What is the stock's PVGO? A. $23.57 A firm increases its dividend plowback ratio. All else equal you know that _____________. D. earnings growth will increase and the stock's P/E may or may not increase A firm has a stock price of $54.75 per share. The firm's earnings are $75 million and the firm has 20 million shares outstanding. The firm has an ROE of 15% and a plowback of 65%. What is the firm's PEG ratio? A. 1.50 At what price would you expect ART to sell? B. $34.29 At what P/E ratio would you expect ART to sell? B. 11.43 What is the present value of growth opportunities for ART? B. $9.29 What price do you expect ART shares to sell for in 4 years? C. $41.68 The EBIT of a firm is $300, the tax rate is 35%, the depreciation is $20, capital expenditures are $60 and the increase in net working capital is $30. What is the free cash flow to the firm? B. $125 A firm reports EBIT of $100 million. The income statement shows depreciation of $20 millions. If the tax rate is 35% and total capital expenditures and increases in working capital total $10 million, what is the free cash flow to the firm? C. $75 13-9
Chapter 13 - Equity Valuation The free cash flow to the firm is $300 million in perpetuity, the cost of equity equals 14% and the WACC is 10%. If the market value of the debt is $1.0 billion, what is the value of the equity using the free cash flow valuation approach? B. $2 billion If a firm has a free cash flow equal to $50 million and that cash flow is expected to grow at 3% forever, what is the total firm value given a WACC of 9.5%? C. $769 million 13-10
Chapter 13 - Equity Valuation The free cash flow to the firm is reported as $405 million. The interest expense to the firm is $76 million. If the tax rate is 35% and the net debt of the firm increased by $50, what is the free cash flow to the equity holders of the firm? A. $406 million The free cash flow to the firm is reported as $275 million. The interest expense to the firm is $60 million. If the tax rate is 35% and the net debt of the firm increased by $33, what is the free cash flow to the equity holders of the firm?