Exercises: Stock Valuation

1. Global INC has 5 mill shares outstanding. The firm is considering issuing an additional 1
Million shares. After selling this share at their $20 per share offering price and netting 95%
of the sale proceeds. The firm is obliged to sell an earlier agreement to sell additional 250000
shares at 90% of the offering price. In total how much cash will the firm can attain?
2. Today the common stock of ATM (Bhd) closed at $24.60 per share, down $.35 from
yesterday. If the company has 4.6 million shares outstanding and annual earnings of $11.2
million, what is its P/E ratio? What was the P/E ratio yesterday?
3. RUPA (Bhd) has estimated its beta is .8 and market premium is 6%. If its risk free rate is 2%,
what will be its required return?
4. NOBEL(com) currently pays an annual year dividend of $1.20 per share. It plans to increase
the dividend by 5 % next year and for the foreseeable future. If required return is 8%, how
much will be the value of this stock today?
5. Annika (Bhd) fixes its annual dividend at $3 for forever. Currently the risk free rate is 4 %
and Annika has a beta of 1.8. If the market return is 11%, what is the value of Annikas stock
today?
6. Sila bought 100 shares from a well-known company that pays $5 dividend since 15 years ago
,when the required return was 15%..Managment expect to pay this dividend for future years
as well. She wants to sell the share today but the required return is 11%. How much capital
gain or loss she can enjoy?
7. McCracken common stock paid a dividend of $1.20 last year. The company expects its
dividend will grow by 5% every year until forever. If the price is $28, what will be the
required return? If the required return is 12% and they offer you at $20 per share, will you
buy?
8. Newman Manufacturing is considering buying the shares of Grips Tool. During the year just
completed Grips earned $4.25 per share and paid cash dividends of $2.55 per share. Grips
earnings and dividend are expected to grow at 25% per year for the next 3 years, after which
they are expected to grow at 10%per year to infinity. What is the price of Grips Tool common
stock? Assuming that investor requires a16% return on this investment.
9. Home Place Hotel Incorporation paid a dividend of $3.40 last year. It expects zero growth
next year. In years 2 and 3, growth is expected to be 5% and in year 4, 15% growth. In year 5
and thereafter growth should be constant 10% per year. What is the maximum price per share
that an investor who requires a return of 14% should pay for this common stock?
10. Eva Corp is growing quickly and expected to pay $3 dividend following year. Dividend will
grow by 30% for the next three years, after this it grow by 6 % thereafter. If required return is
13%, what is the market share price today?

11.The following Income statement shows the last year profit position of company A, a public
listed company in Bursa Malaysia.

EBIT
RM20000
Interest
2000
EBT
18000
Tax(30%)
5400
Net Profit
12600
Dividend payout Ratio 40%
No Of shares
3600
What is the price of the stock today if required return 12%.If constant growth rate6%,
what is the maximum price you will pay?
12.For a company, free cash flow for upcoming years.
Year
Amount
2010
RM400000
2011
450000
2012
520000
2013
560000
2014
600000
Growth rate beyond 2014 is 4%. Value of debt RM330,000. Value of preferred stock
RM900,000. Number of shares outstanding 300,000. What is the value of the company today?
What is the trading price per share today if the required return is 10%?
13. Company B has a stock price of $20 a share. The stock year-end dividend is expected to be
$2 per share and the dividend will grow by a 5% constant growth rate forever. What is the
expected price of the stock three years from now if required return is 12%?