Chapter 13 Practice Set: 1. Consider the following information. Assume it is currently Jan 1, 2018: Jan 1, 2017 Common Stock Equity = $100,000,000. Jan 1, 2018 Common Stock Equity = $110,500,000. 2017 NIAT - $15.000.000. Dividends = $4,500,000. # Common Shares = 5.000.000. (use to determine per share basis. Example: 2016 EPS = $3.00) Tour expect the growth in earnings and div. payout ratio to be maintained indefinitely. The following market information is available. The company has a Beta = 1.2. Currently the stock trades at $50. Economic forecasts suggest the broad market should return 11% for foreseeable future and the current T-bill rate is 3%. e tes Questions: */ a) What is the intrinsic value of the company's stock? 2 . Fundamental V = Do*(1+g)/(k-g) H735 Steps: Find ROE over 2017 = $15,000,000/ ? = Find DPS/EPS and plowback Find g or [ROE * (1-DPS/EPS)] Find Req. Ret using SML Find Value V = [.90*(1+ ? )]/(.126 - ?) = . (note how k=126 was computed) b) What is the company's PVGO? $47.35- E7.126 = ? . c) Compute both the trailing and forward PE ratios. d Would you recommend purchasing this security (compare fundamental value to current price)