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Drill Corporation issued perpetual preferred stock with a 5% annual dividend. The stock
currently yields 10%, and its par value is $120.
b. Suppose interest rates rise and pull the preferred stocks yield up to 14%. What is its
new market value?
b. Yield 14%
Stocks Value = Vp = Dp/rp
= 6/0,14
= $42.85
You are considering an investment in Keller Corps stock, which is expected to pay a
dividend of $2.00 a share at the end of the year (D 1= $2.00) and has a beta of 0.9. The
risk-free rate is 5.6% and the market risk premium is 6%. Keller currently sells for
$25.00 a share, and its dividend is expected to grow at some constant rate g.
Assuming the market is in equilibrium, what does the market believe will be the stock
price at the end of 3 years ? (That is, what is P3?)
P1 = $2
= 0.9
rf = 5.6%
rm = 6%
par value = $25
rs = rf + (rm-rf) x
= 5.6 + (6 x 0.9)
= 11%
P3 = Po x (1 + g)
= 25 x (1 + 0.03)
= 27.3
Microtech Corporation is expanding rapidly and currently needs to retain all of its
earnings; hence, it does not pay dividends. However, investors expect Microtech to
begin paying dividends , beginning with a dividend of $1.00 coming 3 years from
today. The dividend should grow rapidly-at a rate of 50% per year-during Years 4 and
5; but after Year 5, growth should be a constant 8% per year. If the required return on
Microtech is 15%, what is the value of the stock today?
D3 = 1
D4 = 1 (1+50%) = 1.50
D5 = 1.5 (1+50%) = 2.25
D6 = 2.25 (1+8%) = 2.43
P5 = D6 / (r-g)
= 2.43 / (0.15 0.08)
= 34.71
P3(1) = P5 / (1+rs)
= 34.71 / (1+0.15)
= 26.25
P0 = P3(1) + P3(2)
(1+rs)
= 26.25 + 4.005
(1+0.15)
= 19.89
10-15.
0 1 2 3 4
a. What is Doziers horizon, or continuing, value? (Hint: Find the value of all free cash
flow beyond year 3 discounted back to year 3)
b. What is the firms value today?
c. Suppose Dozier has $100 million of debt and 10 million shares of stock out standing.
What is your estimate of the current price per share?
= 713.33
= $42.79
STOCK VALUATION
Disusun Oleh :
Kelompok : 6
MAGISTER MANAGEMEN
2017