Homework answers / question archive / Question 1 20 / 20 pts  ABC Corp

Question 1 20 / 20 pts  ABC Corp

Finance

Share With

---

Question 1

20 / 20 pts

 ABC Corp. has earnings of $500,000 and 1 million shares outstanding.

 You have the following data on comparable companies:

Comparable	Stock price	EPS
123 Corp.	$50	$2
456 Corp.	$140	$4

Based on the average P/E of the comparable companies, estimate the share price of ABC.

 

Question 2

15 / 15 pts

 XYZ Co is expecting $5m of free cash flows in 2017, growing 3% in 2018, 5% in 2019, 8% in 2020 and 12% in 2021. After 2021, free cash flows are expected to remain flat. Calculate the value of XYZ Co, assuming a cost of equity of 13%. (answer in millions.  round to 1 decimal)

 

 

Question 3

15 / 15 pts

Assume that NewCo has 15 million shares outstanding. The stock is trading at $43 per share.  Net income is $105 million.  What is the market cap of NewCo? (round answer in millions)
 

Question 4

15 / 15 pts

Assume that NewCo has 15 million shares outstanding. The stock is trading at $43 per share.  Net income is $105 million.  What is the P/E of NewCo? (round answer to 1 decimal) 

 

Question 5

15 / 15 pts

Company ABC is expected to pay an end-of-year dividend of $4 a share.  After paying the dividend, ABC's stock is expected to sell at $105. If the market capitalization rate is 9%, what is the current stock price? (round to nearest whole dollar)

Question 6

20 / 20 pts

Consider three stocks:

a. Stock A is expected to provide a dividend of $11 a share forever.

b. Stock B is expected to pay a dividend of $4.50 next year. Thereafter, dividend growth is expected to be 5% a year forever.

c. Stock C is expected to pay a dividend of $7 next year. Thereafter, dividend growth is expected to be 15% a year for five years (i.e., years 2 through 6) and zero thereafter.

If the market capitalization rate for each stock is 10%, which is most valuable?

 

  

Stock A

   

Stock B

   

Stock C

   

Not enough info