Refer to Example 1. below, answer the following three questions. Example 1. Wonderful Farm is expected to bring profits of $100,000 in one year and $150,000 in two years from now, and then no residual value after that. Using a discount rate of 5%, what is the present value of Wonderful Farm now? A. 1+5%100,000+(1+5%)2150,000 B. 1+55100,000+1+5%150,000 C. 100,000+150,000 D. 100,000(1+5%)+150,000(1+5%)2 A B c Continue with Example 1. above. If Wonderful Farm has 1,000 shares of stock held by stockholders in total, then the value of each share is $ 36 128 231 569 Question 3 Continue with Example 1, above. The Central Bank decides to inject a significant amount of liquidity to the financial markets, hoping to boost economic growth. According to this information and assuming all other things equal, which of the following is most accurate about Wonderful Farm? The discount rate will decrease Its totat present vatue witt decrease Its stock price will decrease All of the above are correct In the one-period valuation model of stock price: P0=1+rD1+P1 D1 refers to The dividend paid in the last year The expected thidend pald in one year from now The difference in its price from last vear's The annust difference in its dividend Question 5 0.4pts What is the price of a stock with an expected dividend and price next year of $1.5 and $45, respectively? Use a 10% discount rate, 45 46.5 47.39 42.27 Which of the following is least accurate about the Generalized Dividend Valuation Model (Gordon Growth Model) of stock price? P0=(rg)D1or,P0=(rg)De(1+g) g is the assumed growth rate of dividends, and r is the discount rate DO is the current dividend paid per sture, while D1 is the assumed dividend paid per share one vear from now To use this model, we must assume that the dividend of the firm must stay constant forever. All other things equal, the stock price increases if g increases Question 7 0.4 CentralWood is a movie company, and it is expected that it will pay dividends to stockholders at $3 per share in one year from now The market expects CentralWood's revenue will grow at 7% per year, but due to increasing costs, its profit will only grow at 5% per in the future. The discount rate for valuing its stock is 9%. Using this information, how much (\$) is its stock price in the market now according to the Gordon Growth Model? 75 150 33.33 Not enough information to compute the price. The Price-Earning Ratio is defined as of a stock. total assets divided by the number of outstanding shares price per share divided by total eamings total equity divided by earnings per share price per share divided by earnings per share Question 9 0.4pts Alset corp. is a automobile company, In the recent year, its total profits is $100 million, and it has 10 million shares of stock held by stockholders. Alset's current stock price is $300 per share. The average PE ratio in the automobile industry is around 15, According to this information only, which of the following is most accurate? Alset's PE ratio is 10 Investors are willing to pay 30 dollars for each $1 of earnings from Alset. According to PE ratio analysis, Alset's stock is undervalued All of the above are correct Continue with the previous question. Assuming that Alset's PE ratio would move back to the industry average, then its stock price would not change thcrease ty 515 per share decrease by $15 per share: deciease by 5150 persture
