31.Which of the following statements concerning security valuation is least accurate?

A)   A stock with a dividend last year of $3.25 per share, an expected dividend growth rate of 3.5%, and a required return of 12.5% is estimated to be worth $36.11.

B)  A stock to be held for two years with a year-end dividend of $2.20 per share, an estimated value of $20.00 at the end of two years, and a required return of 15% is estimated to be worth $18.70 currently.

C)   A preferred stock with a dividend of $3.00 per share and a required return of 11.5% is estimated to be worth $26.09 currently.

D)   A stock with an expected dividend payout ratio of 30%, a required return of 8%, an expected dividend growth rate of 4%, and expected earnings of $4.15 per share is estimated to be worth $31.13 currently.

32.Given the following estimated financial results, value the stock of FishnChips, Inc., using the infinite period dividend discount model (DDM).

 Sales of $1,000,000

 Earnings of $150,000

 Total assets of $800,000

 Equity of $400,000

 Dividend payout ratio of 60.0%

 Average shares outstanding of 75,000

 Real risk free interest rate of 4.0%

 Expected inflation rate of 3.0%

 Expected market return of 13.0%

 Stock Beta at 2.1

The per share value of FishnChips stock is approximately: (Note: Carry calculations out to at least 3 decimal places.)

A)   $17.91.

B)   Unable to calculate stock value because k_e < g.

C)   $26.86.

D)   -$26.39.

33.A firm pays an annual dividend of $1.15. The risk-free rate (RF) is 2.5 percent, and the total risk premium (RP) for the stock is 7 percent. What is the value of the stock, if the dividend is expected to remain constant?

A)   $16.03.

B)   $12.10.

C)   $25.00.

D)   $46.00.

34.Which of the following statements about the constant growth dividend discount model (DDM) in its application to investment analysis is FALSE? The model:

A)   is best applied to young, rapidly growing firms.

B)   can’t be applied when g>K.

C)   can’t handle firms with variable dividend growth.

D)   can’t be applied to firms who don’t pay dividends.

35.A firm is expected to have four years of growth with a retention ratio of 100 percent. Afterwards the firm’s dividends are expected to grow 4 percent annually, and the dividend payout ratio will be set at 50 percent. If earnings per share (EPS) = $2.4 in year 5 and the required return on equity is 10 percent, what is the stock’s value today?

A)   $20.00.

B)   $30.00.

C)   $13.66.

D)   $40.23.

答案和详解如下：

31.Which of the following statements concerning security valuation is least accurate?

A)   A stock with a dividend last year of $3.25 per share, an expected dividend growth rate of 3.5%, and a required return of 12.5% is estimated to be worth $36.11.

B)  A stock to be held for two years with a year-end dividend of $2.20 per share, an estimated value of $20.00 at the end of two years, and a required return of 15% is estimated to be worth $18.70 currently.

C)   A preferred stock with a dividend of $3.00 per share and a required return of 11.5% is estimated to be worth $26.09 currently.

D)   A stock with an expected dividend payout ratio of 30%, a required return of 8%, an expected dividend growth rate of 4%, and expected earnings of $4.15 per share is estimated to be worth $31.13 currently.

The correct answer was A)

A stock with a dividend last year of $3.25 per share, an expected dividend growth rate of 3.5%, and a required return of 12.5% is estimated to be worth $37.33 using the DDM where Po = D1/(k-g). We are given Do = $3.25, g = 3.5%, and k = 12.5%. What we need to find is D1 which equals Do x (1+g) therefore D1 = $3.25 x 1.035 = $3.36 thus Po = 3.36 / (.125-.035) = $37.33.

In the answer choice where the stock value is $18.70, discounting the future cash flows back to the present gives the present value of the stock. the future cash flows are the dividend in year 1 plus the dividend and value of the stock in year 2 thus the equation becomes: Vo = 2.2 / 1.15 + (2.2 + 20)/1.15 = $18.70

For preferred stock with a perpetual dividend Vo = 3.00/.115 = $26.09

For the answer choice where the stock value is $31.13 use the DDM which is Po = D1/(k-g). We are given k=.08, g=.04, and what we need to find is next year’s dividend or D1. D1 = Expected earnings x payout ratio = $4.15 x .3 = $1.245 thus Po = $1.245 / (.08-.04) = $31.13

32.Given the following estimated financial results, value the stock of FishnChips, Inc., using the infinite period dividend discount model (DDM).

 Sales of $1,000,000

 Earnings of $150,000

 Total assets of $800,000

 Equity of $400,000

 Dividend payout ratio of 60.0%

 Average shares outstanding of 75,000

 Real risk free interest rate of 4.0%

 Expected inflation rate of 3.0%

 Expected market return of 13.0%

 Stock Beta at 2.1

The per share value of FishnChips stock is approximately: (Note: Carry calculations out to at least 3 decimal places.)

A)   $17.91.

B)   Unable to calculate stock value because k_e < g.

C)   $26.86.

D)   -$26.39.

The correct answer was C)

Here, we are given all the inputs we need. Use the following steps to calculate the value of the stock:

First, expand the infinite period DDM:
DDM formula: P₀ = D₁ / (k_e – g)

D1	= (Earnings * Payout ratio) / average number of shares outstanding
	= ($150,000 * 0.60) / 75,000 = $1.20
ke	= nominal risk free rate + [beta * (expected market return – nominal risk free rate)]
	Note: Nominal risk-free rate		= (1 + real risk free rate) * (1 + expected inflation) – 1
			= (1.04)*(1.03) – 1 = 0.0712, or 7.12%.
ke	= 7.12% + [2.1 * (13.0% - 7.12%)] = 0.19468
g	= (retention rate * ROE)
	Retention	= (1 – Payout) = 1 – 0.60 = 0.40.
	ROE	= (net income/sales)*(sales/total assets)*(total assets/equity)
		= (150,000/1,000,000)*(1,000,000/800,000)*(800,000/400,000)
		= 0.375
g	= 0.375 * 0.40 = 0.15

Then, calculate: P₀ = D₁ / (k_e – g) = $1.20 / (0.19468 - 0.15) = 26.86.

33.A firm pays an annual dividend of $1.15. The risk-free rate (RF) is 2.5 percent, and the total risk premium (RP) for the stock is 7 percent. What is the value of the stock, if the dividend is expected to remain constant?

A)   $16.03.

B)   $12.10.

C)   $25.00.

D)   $46.00.

The correct answer was B)

If the dividend remains constant, g = 0.

P = D₁ / (k-g) = 1.15 / (0.095 - 0) = $12.10

34.Which of the following statements about the constant growth dividend discount model (DDM) in its application to investment analysis is FALSE? The model:

A)   is best applied to young, rapidly growing firms.

B)   can’t be applied when g>K.

C)   can’t handle firms with variable dividend growth.

D)   can’t be applied to firms who don’t pay dividends.

The correct answer was A)

The model is most appropriately used when the firm is mature, with a moderate growth rate, paying a constant stream of dividends. In order for the model to produce a finite result, the company’s growth rate must not exceed the required rate of return.

35.A firm is expected to have four years of growth with a retention ratio of 100 percent. Afterwards the firm’s dividends are expected to grow 4 percent annually, and the dividend payout ratio will be set at 50 percent. If earnings per share (EPS) = $2.4 in year 5 and the required return on equity is 10 percent, what is the stock’s value today?

A)   $20.00.

B)   $30.00.

C)   $13.66.

D)   $40.23.

The correct answer was C)

Dividend in year 5 = (EPS)(payout ratio) = 2.4 * 0.5 = 1.2

P₄ = 1.2 / (0.1 - 0.04) = 1.2 / 0.06 = $20

P₀ = PV (P₄) = $20 / (1.10)⁴ = $13.66