Topic 4 - Equity Valuation - Concepts and Basic Tools (I) Consider the following information for fictional firm Boyd Crowder Corp. (BCC). - Bec =1.35 - ROE=15% - E(rM)=12% - TRFR=2% Slide 4 i. What is BCC's cost of equity? ii. Assume that BCC's dividends per share will be $2.50 next year, $3.00 in each of the subsequent three years, and then $3.25 indefinitely. What is the intrinsic value of BCC's share? Slide 5 Assume that BCC's EPS last year were $15 and the firm has a payout ratio of 70%. What is the intrinsic share price of BCC's stock? Slide 7 Assume that last year BCC paid dividends per share of \$4.75. You estimate that dividends will grow at a rate of 12% for the next six years and will then grow at the longterm rate found on Slide 5. What is the intrinsic price of BCC's stock? Slide 8 Assume that BCC also has preferred shares outstanding. These shares have a par value of $14, a dividend rate of 20%, and the cost of preferred shares is 225 basis points less than that of common equity. i. If the shares are perpetual, what is the intrinsic price per preferred share? ii. What is the intrinsic price if the shares mature in eight years? Topic 4 - Equity Valuation - Concepts and Basic Tools (ii) Consider the following information for fictional firm B Mac inc. (BMI) Slide 3 i. Is the stock over- or under-valued relative to its peers? ii. Use the Justified P/E to determine if BMI shares are over-or under-valued