NAME: ID: Q. 01: An investor in Amman, Jordan, estimates that next year's sales for Amman Intercontinental Hotels, Inc. would amount to about 150 million Jordanian dinar. The company has 10 million shares outstanding, generates a net profit margin of about 15%, and has a payout ratio of 40%. All figures are expected to hold for next year. Given this information, compute the following: a. Estimated net earnings for next year b. Next year's dividends per share c. The expected price of the stock (assuming the P/E ratio is 24.5 times earnings) d. The expected holding period return (latest stock price: 40 Jordanian dinar per share) Solution: 0.02: Hydra Corporation has total equity of S300 million and 120 million shares outstanding. Its ROE is 20%. The EPS is 25% Calculate the company's dividends per share (round to the nearest penny) Solution: 0.03: Larry and Curley are brothers. They're both serious investors, but they have different approaches to valuing stocks Larry, the older brother, likes to use the dividend valuation model. Curley prefers the free cash flow to cquity valuation model. As it turns out, right now, both of them are looking at the same stock - American Home Care Products, Inc. (AHCP). The company has been listed on the NYSE for over 50 years and is widely regarded as a mature, rock-solid, dividend-paying stock. The brothers have gathered the following information about AHCP's stock Current dividend (DO) - 2.50'share Current free cash flow (FCFO) - $1 million Expected growth rate of dividends and cash flows (g) = 5.0% Required rate of return (t) - 12.0% Shares outstanding = 400,000 How would Larry and Curley cach value this stock? Solution: 0.04 You're thinking about buying some stock in Affiliated Computer Corporation and want to use the PE approach to value the shares. You've estimated that next year's carings should come in at about 54.00 a share. In addition, although the stock formally trades at a relative PE of L15 times the market, you believe that the relative PE will rise to 1.25, whereas the market PE should be around 18.5 times carings. Given this information, what is the maximum price you should be willing to pay for this stock? If you buy this stock today at $87.50, what rate of return will you can over the next 12 months if the price of the stock rises to $110.00 by the end of the year (Assume that the stock doesn't pay dividends.) Solution 0.05 Last year, Black Hole Company paid 590 million of interest expense, and its average rate of interest for the year was 15%. The company's ROE is 30%, and it pays no dividends Estimate next year's interest expense, assuming that interest rates will fall by 20% and the company keeps a constant equity multiplier of 25% Solution :) Q. 06: Consolidated Software doesn't currently pay any dividends but is expected to start doing so in four years. That is Consolidated will go three more years without paying dividends and then is expected to pay its first dividend (of S3 per shate) in the fourth year. Once the company starts paying dividends, it's expected to continue to do so. The company is expected to have a dividend payout ratio of 40% and to maintain a retum nequity of 20% Based on the DVM and given a required rate of retum of 15%, what is the maximum price you should be willing to pay for this stock today
