This assignment requires 3 to 4 pages of (excluding tables, graphs, appendices, title, and reference pages) APA-formatted Word document responses to the questions below. You may also include Excel attachments to show your work, where appropriate. Your answers should be clear, well-organized, and specific. 1. Discuss pros and cons of the three (3) approaches used by analysts to value a companys equity. Namely, the free cash-flow based approaches, earnings- based approaches, and market-based approaches. Provide numerical examples. 2. Below you will find the Stiller Corporation financials for the year 2018 and 2019 (Table 7). Table 7 Stiller Corporation Comparative Balance Sheet (2018-2019) in USD

# TEXT 2019 2018 1 Cash $157,00 0 $78,00 0 2 Accounts Receivable 180,000 185,00 0 3 Investments 52,000 74,000 4 Equipment 298,000 240,00 0

5 Less accumulated depreciation

(106,00 0) (89,000 ) 6 Current liabilities 134,000 151,00 0 7 Common stock 160,000 160,00 0 8 Retained earnings 287,000 177,00 0

Additional information: Investments were sold at a loss (not extraordinary) of $7,000; no equipment was sold; cash dividends paid were $50,000; and net income was $160,000. . Prepare a statement of cash flows for 2019 for Stiller Corporation. a. Calculate the companys free cash flow. b. Assuming the 2019 cash flows grow at the rates of 20%, 18%, 15% in 2020, 2021, and 2022 respectively, and then stabilize at 10%, calculate the

BUS 622 Syllabus

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current value of Stiller Corporation. Assume the companys weighted average cost of capital is 12%.

3. Booker Inc. is a distributor of building supplies. Management for the company has developed the following forecasts of net income: Table 8

Forecasted Net Income of Booker Inc. in USD (As of December 31 st of each year)

Yea r Forecasted Net Income

201 1

$111,432

201 2

$131,490

201 3

$156,473

201 4

$178,379

201 5

$199,784

Management expects net income to grow at a rate of 7% per year after 2015, and the company's cost of equity capital is 14%. Management has set a dividend payout ratio equal to 25% of net income and plans to continue this policy. Bookers common shareholders' equity at January 1, 2011 is $544,902. . Using the residual income model, compute the value of equity of Booker as of January 1, 2011. a. Using the dividend discount model, compute the value of equity of Booker as of January 1, 2011. b. Compare the results in parts (a) and (b) and discuss possible reasons for any discrepancies.

4. Consider the following scenario and complete the last column and then assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate:

Table 9 Estimating price earning(P/E) ratios under various scenarios Scenari o

Cost of Equity Capital

Growth Rate in Earnings

P/E Ratio

1 0.13 0.09 2 0.13 0.11 3 0.15 0.09 4 0.18 0.09 5 0.18 0.11