Question

24,29,&30 please

You are looking at some stocks to value using different valuation models and come across the following questions: 24. T/F the lower the growth rate and the lower the discount rate, the higher the price using the dividend discount model or PV of FCF model 25. A stock with a current dividend of $2 and a growth rate of 4% and a cost of equity of 9% has an Intrinsic value of: @ 42 b. 40 c. 23 d. 50 26. I want to calculate the value of operations of a firm with next years FCF of 10 million, a growth rate of 3%, a WACC of 8% and a required return on equity of 10%. What is that value? 200 million b. 206 million c.143 million d125 million 27. The value of operation of a firm is 850 million and they have 15 million in short term investments. If they have 80 million in debt and 10 million in preferred stock, what is the value of each share of stock if they have 25 million shares outstanding? a. 31.4 b. b 34 c. c.32 d. 31 28.OF A stock that has a PE multiple of 15 and earnings of 2 per shares should trade at 30. 29 T/F it is not really that important to compare the PE of a company to it's industry average to see if it is over or under valued 30. T/F A company with a high PE multiple is overvalued even if they have a high growth rate.

Answer 1

24]

As per dividend discount model, price of stock = next year dividend / (discount rate - growth rate).

Hence, higher the growth rate, lower the denominator in the equation, and higher the stock price. Similarly, lower the discount rate, lower the denominator in the equation, and higher the stock price.

The statement is false

29]

false

Comparing a company's PE ratio to the industry average is important to determine whether it is overvalued or undervalues. This is because every industry has a different average PE ratio, and comparing a company to the industry average can give a fair idea as to whether the company is overvalued or undervalue relative to the industry.