Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Techfin Consulting, a profitable company, has yet to pay dividends. However, its board has indicated to initiate a $0.25 dividend in 4 years and

1. Techfin Consulting, a profitable company, has yet to pay dividends. However, its board has indicated to initiate a $0.25 dividend in 4 years and increase by 30% each year for 2 years before reaching a constant rate at 8% thereafter. Assuming a required return of 10%, estimate the stock's current value?

2. NASA just revealed a major contract with Boeing that would increase Boeings market value by $7.5 billion. It was widely expected by the market that this contract would be awarded to Lockheed-Martin (LMT). Assume that Boeing has 800 million shares outstanding and Lockheed Martin has 425 million shares outstanding. Prior to this announcement, the market felt that the probability of Boeing winning the contract was 10% and that Lockheed-Martin's chance was only about 90%. What do you anticipate will happen to Lockheed-Martin and Boeing's stock prices are a result of this surprise announcement?

3. You expect CCM Corporation to generate the following free cash flows over the next five years shown below. Following year five, you estimate that CCM's free cash flows will grow at 4% per year and that CCM's weighted average cost of capital is 11%. CCM has $200 million of debt and 8 million shares of stock outstanding. First estimate the enterprise value of CCM Corporation and then estimate the share price for CCM.

Year

1

2

3

4

5

FCF ($ millions)

25

28

32

37

40

Year

1

2

3

4

5

FCF ($ millions)

25

28

32

37

40

4. Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the price-to-earnings ratios for its competitors, estimate the lowest expected stock price for Novartis.

Company

Ticker

Price

per Share

Earnings

per Share

Book Value

per Share

Price/

Earnings

Price/

Book

Abbott Labs

ABT

54.35

3.69

13.79

14.73

3.94

Bristol-Myers-

Squibb

BMY

25.45

1.93

7.33

13.19

3.47

GlaxoSmithKline

GSK

41.3

3.15

6.03

13.11

6.85

Johnson & Johnson

JNJ

62.6

4.58

18.27

13.67

3.43

Merck

MRK

36.25

3.81

10.86

9.51

3.34

Pfizer

PFE

$18.30

$1.20

8.19

15.25

2.23

Average

13.24

3.88

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Theory And Practice

Authors: Anne Marie Ward

3rd Edition

1908199482, 978-1908199485

More Books

Students also viewed these Finance questions

Question

Explain the chemical properties of acids with examples.

Answered: 1 week ago

Question

Write the properties of Group theory.

Answered: 1 week ago