1. Assume Evco, Inc. has a current stock price of $48.77 and will pay a $1.75 dividend in one year; its equity cost of capital is 18%. To justify its current price, what price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year?

We can expect Evco stock to sell for $=

(Round to the nearest cent.)

2. Anle Corporation has a current stock price of $24.75 and is expected to pay a dividend of $1.15 in one year. Its expected stock price right after paying that dividend is $26.63.

(Round to two decimal places.)

a. What is Anle's equity cost of capital?

b. How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain?

3. Laurel Enterprises pays annual dividends, and the next dividend is expected to be in one year. Laurel expects earnings next year of $3.53 per share and has a 40% retention rate, which it plans to keep constant. Its equity cost of capital is 9%, which is also its expected return on new investment; this is expected to continue forever. What do you estimate the firm's current stock price to be? (Hint: its next dividend is due in one year.)

The current stock price will be $=

(Round to the nearest cent.)

4. CX Enterprises has the following expected dividends: $1.06 in one year, $1.17 in two years, and $1.29 in three years. After that, its dividends are expected to grow at 4.3% per year forever (so that year four's dividend will be 4.3% more than $1.29 and so on). If CX's equity cost of capital is 11.9%, what is the current price of its stock?

The price of the stock will be $=

(Round to the nearest cent.)

5. Shatin Intl. has 10 million shares, an equity cost of capital 15%, and is expected to pay a total dividend of $22 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $8 million of stock each year as well. How much will its stock price increase?

The stock price will increase by $=

(Round to the nearest cent.)

6. After researching the competitors of EJH Enterprises, you determine that most comparable firms have the following valuation ratios:

Comp 1 Comp 2 Comp 3 Comp 4

EV/EBITDA 12 11 12.5 10

P/E 19 18 20 17

EJH Enterprises has EPS of $1.90, EBITDA of $290 million, $28 million in cash, $42 million in debt, and 103 million shares outstanding. What range of prices is consistent with both sets of multiples?

The range of prices will be:

Lowest price within both ranges, the P/E and EV/EBITDA ranges, is $=

(Round to two decimal places.)

Highest price within both ranges, the P/E and the EV/EBITDA ranges, is $=

(Round to two decimal places.)