Q3 (40 marks, 5 marks for each part) Valuing Stock 3.1-3.3 Corporation A's stock has a price of $50 at t=0. It is expected to pay a dividend of $2 at t=1 and its expected price at t=1 but right after paying the dividend is $52. 3.1 What is this stocks expected currency yield? 3.2 What is this stock's expected capital gain rate? 3.3 What is this stock's equity cost of capital? 3.4-3.5 Corporation B's stock is expected to pay a dividend of $5 per share at t=1. Its equity cost of capital is 8%. 3.4 You conduct a research on Corporation Bs business and conclude that its dividend will grow 3% every year in the future. What should be the value of this stock at t=0 based on your conclusion? 3.5 Say the market price of the stock at t=0 is $90. What is the implied dividend growth rate? 2 3.6-3.8 Corporation C has an EPS $3 and EBITDA of $40 million. Corporation C has 8 million shares outstanding. Another company, Corporation D, is comparable with Corporation C in terms of its underlying business. Corporation D has a P/E ratio of 12 and an EV/EBITDA ratio of 6. 3.6 Could you estimate the value of Corporation C's stock using the P/E ratio of Corporation D? 3.7 Could you estimate the value of Corporation C's stock using the EV/EBITDA ratio of Corporation D? 3.8 It is said that Corporation C's total debt is about the same as its book value of equity while Corporation D uses almost no debt. Which of your answers in (3.6) and (3.7) is more accurate