Stock Valuation Analysis - EDM, Inc. and Pasha Entertainment, Inc.
Utilize stock valuation principles to determine current and future stock prices for EDM, Inc. and Pasha Entertainment, Inc. Analyze dividend growth rates, required returns, and share prices to make informed investment decisions.
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Presentation Transcript
Class Problems Chapter 7B Stock Valuation 1. EDM, Inc. just paid a dividend of $2.35 per share on its stock. The dividends are expected to grow at a constant rate of 4.1% per year, indefinitely. If investors require a return of 10.4% on this stock, what is the current price? 2. What will the price be in three years? 3. What will the price be in 15 years? 1
4. Pasha Entertainment, Inc. is expected to pay the following dividends over the next four years: $6, $12, $17, and $3.25. Afterward, the company pledges to maintain constant 5% growth rate in dividends, forever. If the required return on the stock is 11%, what is the current share price? 5. Suppose you know that a company s stock currently sells for $67 per share and the required return on the stock is 11.5%. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield. If it is the company s policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? 2
6. Take Time Corporation will pay a dividend of $3.65 per share next year. The company pledges to increase its dividend by 5.1% per year, indefinitely. If you require a return of 11% on your investment, how much will you pay for the company s stock today? 7. The next dividend payment by Dizzle, Inc. will be $2.48 per share. The dividends are anticipated to maintain a growth rate of 4.5% forever. If the stock currently sells for $39.85, what is the required return? 8. Mitchell, Inc. is expected to maintain a constant 4.6% growth rate in its dividend, indefinitely. If the company has a dividend yield of 5.8%, what is the required return on the company s stock? 3
9. Gontier Corporation stock currently sells for $53.95 per share. The market requires a return of 10.3% on the firm s stock. If the company maintains a constant 4.9% growth rate in dividends, what was the most recent dividend per share paid on the stock? 10. Metallica Bearings, Inc. is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $19 per share 10 years from today and will increase the dividend by 5% per year thereafter. If the required return on this stock is 13%, what is the current share price? 4
Class Problems Chapter 7C Stock Valuation 1. Ushuaia, Inc. currently has an EPS of $4.13, and the benchmark PE ratio for the company is 15. Earnings are expected to grow at 5% per year. What is your estimate of the current stock price? 2. What is the target stock price in one year? 3. Assuming the company pays no dividends, what is the implied return on the company s stock over the next year? 5
4. The Sleeping Flower Co. has earnings of $2.65 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21? 5. Davis, Inc. currently has an EPS of $2.75 and an earnings growth rate of 8%. If the benchmark PE ratio is 21, what is the target share price five years from now? 6. TwitterMe, Inc. is a new company and currently has negative earnings. Its sales are $1.35 million and there are 130,000 shares outstanding. If the benchmark price- sales ratio is 4.8, what is you estimate of the appropriate stock price? 6
