1.You buy a share of Home Depot (HD) stock, which promises to pay you $1.50 forever. Assume HD has a Beta of 0.9, the expected market return is 8% and the risk free rate is 3%. What is the value of this perpetual annuity?

2. Home Depot (HD) recently paid a annual dividend of $1.50 per share. Using a one period dividend growth model, what is the price of one share of HD stock if the terminal dividend growth rate is 5%? Assume HD has a cost of equity of 10%.

3. Home Depot (HD) recently paid a annual dividend of $1.50 per share. Using a multi-period dividend growth model, what is the price of one share of HD stock if HD grows its dividend by 11% for the first two years and then from year 3 grows its dividend at 4% (terminal growth rate). Assume HD has a Beta of 0.9, the expected market return is 8% and the risk free rate is 3%. Questions

4. Intel (INTC) just reported free cash flow to equity (FCFE) of $15.45 per share. Using a multi-period free-cash flow to equity model, what is the price of one share of INTC stock if INTC grows its FCFE by 25% for the first two years and then from year 3 grows its FCFE at 2.5% (terminal growth rate). Assume INTC has a Beta of 2.1, the expected market return is 5% and the risk free rate is 1%.

5. Microsoft (MSFT) just reported free cash flow to equity (FCFE) of $3.55 per share. Using a multi-period free-cash flow to equity model, what is the price of one share of MSFT stock if MSFT grows its FCFE by 10% for the first two years and then from year 3 grows its FCFE at 2% (terminal growth rate). Assume MSFT has a Beta of 1.2, the expected market premium is 5% and the risk free rate is 2%.

6. Microsoft (MSFT) just reported free cash flow to equity (FCFE) of $3.55 per share. Using a multi-period free-cash flow to equity model, what is the price of one share of MSFT stock if MSFT grows its FCFE by 5% for the first two years and then from year 3 grows its FCFE at 3% (terminal growth rate). Assume MSFT has a cost of equity of 8%. Questions

7. Microsoft (MSFT) just reported free cash flow to equity (FCFE) of $3.55 per share. Using a multi-period free-cash flow to equity model, what is the price of one share of MSFT stock if MSFT grows its FCFE by 10% for the first two years and then from year 3 grows its FCFE at 3% (terminal growth rate). Assume MSFT has a cost of equity of 10%. a. Derive the P/E Rato of ~12.1 assuming ROE of 20% b. Calculate the price of MSFT using the PE Ratio to calculate the Terminal Value (assume Net Income per share of $5.93 on year 3)