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LOS l: Calculate and explain the use of price multiples in determining terminal value in a multi-stage discounted cash flow (DCF) model. ffice ffice" />
Q1. Precision Tools is expected to have earnings per share (EPS) of $5.00 per share in five years, a dividend per share of $2.00, a cost of equity of 12%, and a long-term expected growth rate of 5%. What is the terminal trailing price-to-earnings (P/E) ratio in five years?
A) 7.14.
B) 9.00.
C) 6.00.
Correct answer is C)
P5/E5 = (0.40 × 1.05) / (0.12 – 0.05) = 6.00
Q2. A common price to earnings (P/E) based method for estimating terminal value in multi-stage models is the:
A) P/E to growth (PEG) approach.
B) dividend yield approach.
C) fundamentals approach.
Correct answer is C)
It is common to restate the Gordon growth model price as a multiple of expected future book value per share or earnings per share (EPS).
Q3. Industrial Light is expected to have earnings per share (EPS) of $5.00 per share in five years, a dividend per share of $2.50, a cost of equity of 12%, and a long-term expected growth rate of 5%. What is the terminal trailing price-to-earnings (P/E) ratio in five years?
A) 3.75.
B) 7.50.
C) 7.14.
Correct answer is B)
P5 / E5 = (0.50 × 1.05) / (0.12 – 0.05) = 7.50
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发表于 2009-3-9 17:17
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