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