Question 17

The Francis Company is expected to pay a dividend of P1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

Group of answer choices

P28.90

P30.36

P31.12

P29.62

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Question 18

Which of the following statements is(are) true?

1. Supernormal growth is normally expected to last for infinite periods
2. A great company can grow faster than the economy forever
3. The constant growth dividend discount model is appropriate for valuing companies experiencing supernormal growth

Group of answer choices

None

Statements 1 and 2

Statement 2 only

All three statements

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Question 19

Which of the following is correct about the risk-free rate as used in valuing equity instruments?

Group of answer choices

The risk-free rate used for valuing equity instruments is normally the yield of a long-term government security.

The risk-free rate used for valuing equity instruments is the same as that used for valuing short-term debt instruments.

The risk-free rate accounts for the risks related to government securities which is composed of credit-spread, maturity risk premium and the real risk-free rate.

The risk-free rate accounts for the rate of return or yield of a government instrument which does not carry any risk.

Question 20

Which of the following is not a component of an investor's required rate of return?

Group of answer choices

Systematic risk

Inflation

The real risk free rate

Risk premium

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Question 212.5 pts

Value+ is currently estimating the value of its debt and equity instruments and had obtained the following information:

• Long-term government securities currently trade at a yield of 4.5%
• Cost of debt was estimated at 6.5% factoring the credit riskiness of Value+
• 60% of its profits are historically recapitalized into the business but this is expected to be at 80% beginning next year as Value+ expands into the Chinese market
• Current year profit is at Php500,000 and total shareholder's equity is at Php5,000,000 with 100,000 outstanding common shares
• Shares currently trade at Php54.00

What is the dividend yield of Value+?

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Question 22

AlphaGet is currently assessing the value of its securities and have obtained the following information that should provide AlphaGet with the necessary information to estimate the value of its securities:

• Current long-term government securities carry a yield of 6.5% which includes an inflation premium of 1.25%
• Based on the credit rating of AlphaGet of BAA, the estimated credit spread of AlphaGet is at 2.5%
• Utilizing the work of an external expert, beta of AlphaGet is estimated at +1.5 for marginal investors
• Diversified investors in the market is currently demanding a 2.0% premium over government securities

The following are the current instruments issued by AlphaGet:

• Bond A carries a 5-year tenor and will mature in 3 years with a face value of Php250,000 carrying a coupon of 9.0%
• Bond B carries a 10-year tenor and will mature in 5 years with a face value of Php500,000 carrying a coupon of 8.5%
• Bond C carries a 5-year tenor and was just recently issued with a face value of Php500,000 carrying a coupon of 10.0%

AlphaGet had historically paid dividends out at a rate of 10% of its net income. Dividends paid out this year amounted to Php120.00 per share and is expected to grow by 5% per year over the next 5 years before stabilizing at 3.5% perpetually after year five.

What is the real risk-free rate for AlphaGet using the fisher rule?

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Question 23

Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information:

• Real risk-free rate is currently estimated at 4.25%
• The expected inflation premium is at 1.75%
• Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at:
  • 2.5% for 3-year maturity instruments
  • 3.0% for 4-year maturity instruments
  • 4.0% for 5-year maturity instruments

Borrower Inc. have the following issued bonded indebtedness:

• Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.5% per annum.
• Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum.
• Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum.

What is the value of Bond B?

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Question 24

Borrower Inc. is currently estimating the value of its bonded indebtedness with the following information:

• Real risk-free rate is currently estimated at 4.25%
• The expected inflation premium is at 1.75%
• Considering the current creditworthiness of Borrower Inc., it's credit spread is estimated at:
  • 2.0% for 3-year maturity instruments
  • 3.0% for 4-year maturity instruments
  • 4.0% for 5-year maturity instruments

Borrower Inc. have the following issued bonded indebtedness:

• Bond A carries a 5-year tenor with a face value of Php500,000 issued 2 years ago carrying a coupon of 8.0% per annum.
• Bond B carries a 5-year tenor with a face value of Php600,000 issued a year ago carrying a coupon of 10.0% per annum.
• Bond C carries a 8-year tenor with a face value of Php400,000 issued 3 years ago carrying a coupon of 11.5% per annum.

What is the value of Bond C?