Chapter 9:

Questions and Problems 11: Stock Valuation

Universal Laser, Inc, just paid a dividend of $3.10 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year, Indefinitely. Investors require a 15 percent return on the stock for the first three years, a 13 percent return for the next three years, and then an 11 percent return thereafter. What is the current share price for the stock?

Questions and Problems 27: Growth Opportunities

The Stambaugh Corporation currently has earnings per share of $9.40. The company has no growth and pays out all earnings as dividends. It has a new project that will require an investment of $1.95 per share in one year. The project is only a two-year project, and it will increase earnings in the two years following the investment by $2.75 and $3.05, respectively. Investors require a return of 12 percent on Stambaugh stock.

a. What is the value per share of the company's stock assuming the firm does not undertake the investment opportunity?

b. If the company does undertake the investment, what is the value per share now?

c. Again, assume the company undertakes the investment. What will the price per share be four years from today?

Questions and Problems 30 Stock Valuation and PE

Ramsay Corp. currently has an EPS of $2.35, and the benchmark PE for the company is 21. Earnings are expected to grow at 7 percent per year.

a. What is your estimate of the current stock price?

b. What is the target stock price in one year?

c. Assuming the company pays no dividends, what is the implied return on the company's stock over the next year? What does this tell you about the implicit stock return using PE valuation?

Questions and Problems 31: Stock Valuation and EV

FFDP Corp. has yearly sales of $28 million and costs of $12 million. The company's balance sheet shows debt of $54 million and cash of $18 million. There are 950,000 shares outstanding and the industry EV/EBITDA multiple is 7.5. What is the company's enterprise value? What is the stock price per share?