Horizon value of free cash flows and portfolio beta

Assignment Help Financial Management

Reference no: EM131962257

Problem DPS

Calculation Thress Industries just paid a dividend of $2.00 a share (i.e., D0 = $2.00). The dividend is expected to grow 9% a year for the next 3 years and then 15% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to the nearest cent.

D1 = $

D2 = $

D3 = $

D4 = $

D5 = $

Problem Options

A call option on the stock of Bedrock Boulders has a market price of $6. The stock sells for $28 a share, and the option has a strike price of $25 a share. What is the exercise value of the call option? $ What is the option's time value? $

Problem Horizon Value of Free Cash Flows

Current and projected free cash flows for Radell Global Operations are shown below.

Actual Projected

2016 2017 2018 2019

Free cash flow $613.32 $674.00 $714.05 $756.89

(millions of dollars)

Growth is expected to be constant after 2015, and the weighted average cost of capital is 11.9%. What is the horizon (continuing) value at 2016 if growth from 2015 remains constant? Round your answer to the nearest dollar. Round intermediate calculations to two decimal places.

Problem Free Cash Flow Valuation

Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dozier's weighted average cost of capital is WACC = 13%.

Year

1 2 3

Free cash flow ($ millions) -$20 $30 $40

(A) What is Dozier's terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to two decimal places. $ million

(B) What is the current value of operations for Dozier? Round your answer to two decimal places. Round intermediate calculations to two decimal places. $ million

(C) Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Round your answer to the nearest cent. Round intermediate calculations to two decimal places. $ _______

Problem Portfolio Beta

Your investment club has only two stocks in its portfolio; $30,000 is invested in a stock with a beta of 0.6, and $65,000 is invested in a stock with a beta of 1.3. What is the portfolio's beta? Round your answer to two decimal places.

Problem Historical Realized Rates of Return

Stocks A and B have the following historical returns:

Year

2012 -16.00% -18.00%

2013 30.75 17.30

2014 15.00 21.10

2015 -3.50 -12.50

2016 25.50 43.85

Calculate the average rate of return for each stock during the 5-year period. Round your answers to two decimal places.

Stock A %

Stock B %

Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? Round your answers to two decimal places.

Year Portfolio

2012 %

2013 %

2014 %

2015 %

2016 %

Average return %

Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.

rA rB Portfolio

Std. Dev. % % %

If you are a risk-averse investor then, assuming these are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio?

Problem Value of Operations:

Constant Growth EMC Corporation has never paid a dividend. Its current free cash flow of $500,000 is expected to grow at a constant rate of 5.9%. The weighted average cost of capital is WACC = 14.75%. Calculate EMC's estimated value of operations. Round your answer to the nearest dollar. $

Problem

Expected Return: Discrete Distribution

A stock's return has the following distribution:

Demand for the Company's Products Probability of This Demand Occurring Rate of Return if This Demand Occurs (%)

Weak 0.1 -30%

Below average 0.2 -5

Average 0.4 5

Above average 0.2 30

Strong 0.1 70

1.0

Calculate the stock's expected return. Round your answer to two decimal places. %

Calculate the standard deviation. Round your answer to two decimal places. %

Problem Constant Growth Valuation

Woidtke Manufacturing's stock currently sells for $15 a share. The stock just paid a dividend of $1.75 a share (i.e., D0 = $1.75), and the dividend is expected to grow forever at a constant rate of 6% a year.

What stock price is expected 1 year from now? Round your answer to the nearest cent. $

What is the estimated required rate of return on Woidtke's stock?

Do not round intermediate calculations. Round the answer to three decimal places. %

Reference no: EM131962257

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