Explore BrainMass

Finance Valuation: Stock Value, Discount Rate, Required Return

1. Doctors-On-Call, a newly formed medical group, just paid a dividend of $1.50. The company's dividend is expected to grow at a 20% rate for the next 3 years and at a 3% rate thereafter. What is the value of the stock if the appropriate discount rate is 12%?

2. Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. After that time, the company plans on paying a constant $1 a share dividend indefinitely. How much are you willing to pay to buy a share of this stock if your required return is 14%?

3. Schnusenberg Corporation just paid a dividend of $0.65 per share, and that dividend is expected to grow at a constant rate of 7.00% per year in the future. The company's beta is 0.95, the required return on the market is 10.50%, and the risk-free rate is 5.00%. What is the company's current stock price?

4. A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?

Year: 1 2 3
Free cash flow: -$15 $10 $40

5. Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever.

Its balance sheet shows

- $65 million in accounts receivable,
- $45 million in inventory,
- $43 million in short-term investments that are unrelated to operations,
- $20 million in accounts payable,
- $95 million in long-term debt,
- $25 million in preferred stock,
- $40 million in retained earnings, and $
- 130 million in total common equity.

If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?

If the company has 30 million shares of stock outstanding, what is the best estimate of the stock's price per share?

Solution Summary

The following posting helps with finance valuation problems. Concepts covered include stock value, discount rate and required return.