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10-8.

Preferred Stock Valuation

Drill Corporation issued perpetual preferred stock with a 5% annual dividend. The stock
currently yields 10%, and its par value is $120.

a. What is the stocks value?

b. Suppose interest rates rise and pull the preferred stocks yield up to 14%. What is its
new market value?

Dividend = 5/100 x 120 = $6

a. Stocks value = Vp = Dp/rp


= 6/0.1
= $60

b. Yield 14%
Stocks Value = Vp = Dp/rp
= 6/0,14
= $42.85

10-13. Constan Growth

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%

Price today = next div / r-g


25 = 2 / (0.11 - g)
25x(0.11-g) = 2
2.75-25g = 2
0.75 = 25g
g = 0.03 = 3%

P3 = Po x (1 + g)
= 25 x (1 + 0.03)
= 27.3

10-14. Non Constant Growth

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

Nilai perpetuity dihitung pada tahun ketiga sebagai berikut :

P3(1) = P5 / (1+rs)
= 34.71 / (1+0.15)
= 26.25

Nilai saham tahun ke 3 sampai 5 (g : 50%) :

P3(2) = D3 + D4/(1+rs) + D5/(1+rs)


= 1 + 1.5 (1+0.15) + 2.25 (1+0.15)
= 4.005

P0 = P3(1) + P3(2)
(1+rs)

= 26.25 + 4.005

(1+0.15)

= 19.89
10-15.

Dozier Corporation is a fast-growing supplier of office product. Analyst project the


following free cash flow (FCFs) during the next 3 years, after which FCF is expected
to grow at constant 7% rate. Doziers WACC is 13%.

0 1 2 3 4

-$20 $30 $40 $42.8

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?

a. Horizon Value = yr 3 FCF (1+g) / wacc - g

= 42.8 / (0.13 0.07)

= 713.33

b. -20 / (1+0.13) = -17.70 +40 = 753.33


30 / (1+0.13) = 23.49
753.33 / (1+0.13) = 527.89 +
Firms Value = 527.89

c. Intrinsic value of common equity = firms value total debt


= 527.890.000 100.000.000
= 427.890.000

Price per share = 427.890.000 / 10.000.000

= $42.79

INTRODUCTION TO FINANCIAL MANAGEMENT

STOCK VALUATION
Disusun Oleh :

Carolina Karisa Purnomo

Septyana Luckyta Sari

M Risky Pratama Putra

Kelompok : 6

MAGISTER MANAGEMEN

FAKULTAS EKONOMIKA DAN BISNIS

UNIVERSITAS GADJAH MADA

2017