Exercise 1. Suppose that the stock of a mining company X is currently trading on the...

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Exercise 1. Suppose that the stock of a mining company X is currently trading on the market at 111 per share. Suppose that there are no commission fees on transactions. This mining company is expected to pay a dividend of 3 per share exactly in a year and a dividend of 4 per share exactly in two years from now. Suppose that you expect the market price of this company's stock to be 120 exactly in two years from now. Using the Dividend Discount Model, estimate the present value of this mining company's stock and justify whether you would or wouldn't invest in this stock if your required rate of (annual) return on this type of stock is 12% ? Exercise 2. Consider a company, which stock is currently trading at 8.00. The company has just paid a dividend of 0.30 per share. You expect the dividend to increase by 10% for the next two years and then increase by 5% per year forever. Suppose that your required return in case of this company is 8%. Estimate the value of this company's stock by using a two-stage Dividend Discount Model and judge whether this company's stock is undervalued, fairly valued, or overvalued. Exercise 3. Suppose that a company has free cash flow to the firm (FCFF) of 1.7 billion and free cash flow to equity (FCFE) of 1.3 billion. Company's WACC is 8%, and its required rate of return for equity is 10%. FCFF is expected to grow forever at 5%, and FCFE is expected to grow forever at 6%. The company has debt outstanding of 10 billion (in market value). The company has 2.5 billion shares outstanding. a) Calculate the total value of this company's equity using the FCFF valuation approach (10 points) b) Calculate the total value of this company's equity using the FCFE valuation approach and find also the value per share of this company. Exercise 4. Suppose that 90% of company's total assets of 450 million euros are financed with debt capital. Its cost of debt is 8% before taxes, and its cost of equity capital is 12%. Company's last years' pre- tax income was 5.1 million euros and the tax rate was 40%. What was this company's residual income during the last year? Exercise 1. Suppose that the stock of a mining company X is currently trading on the market at 111 per share. Suppose that there are no commission fees on transactions. This mining company is expected to pay a dividend of 3 per share exactly in a year and a dividend of 4 per share exactly in two years from now. Suppose that you expect the market price of this company's stock to be 120 exactly in two years from now. Using the Dividend Discount Model, estimate the present value of this mining company's stock and justify whether you would or wouldn't invest in this stock if your required rate of (annual) return on this type of stock is 12% ? Exercise 2. Consider a company, which stock is currently trading at 8.00. The company has just paid a dividend of 0.30 per share. You expect the dividend to increase by 10% for the next two years and then increase by 5% per year forever. Suppose that your required return in case of this company is 8%. Estimate the value of this company's stock by using a two-stage Dividend Discount Model and judge whether this company's stock is undervalued, fairly valued, or overvalued. Exercise 3. Suppose that a company has free cash flow to the firm (FCFF) of 1.7 billion and free cash flow to equity (FCFE) of 1.3 billion. Company's WACC is 8%, and its required rate of return for equity is 10%. FCFF is expected to grow forever at 5%, and FCFE is expected to grow forever at 6%. The company has debt outstanding of 10 billion (in market value). The company has 2.5 billion shares outstanding. a) Calculate the total value of this company's equity using the FCFF valuation approach (10 points) b) Calculate the total value of this company's equity using the FCFE valuation approach and find also the value per share of this company. Exercise 4. Suppose that 90% of company's total assets of 450 million euros are financed with debt capital. Its cost of debt is 8% before taxes, and its cost of equity capital is 12%. Company's last years' pre- tax income was 5.1 million euros and the tax rate was 40%. What was this company's residual income during the last year?