Equity Investments MCQ - Equity Investments Section 2

96 Corporation XYZ has just paid a dividend of $2.57 per share. Dividends are expected to grow by 12% for the next two years and 8% the year after that. From the fourth year, the dividends are expected to grow at 6.2% indefinitely. What is the intrinsic value of the stock of XYZ if the required rate of return is 7.2%?

97 An analyst is attempting to value shares of Mitsubishi. Mitsubishi has just paid a dividend of $5 per share. Annual dividends are expected to grow at the rate of 6% per year over the next three years. At the end of three years, shares of Mitsubishi are expected to sell for $70. If the required rate of return is 10%, the intrinsic value of a share is closest to:

98 A company has the following figures for its dividends history over the last four years:

Year	2013	2012	2011	2010	2009
DPS ($)	2.6	2.55	2.51	2.48	2.42

A company analyst uses the average of the compounded annual growth rate over the 4-year period and the sustainable growth rate for 2013 in order to estimate the growth rate of the company.She then uses the Gordon growth model to find the value of company’s stock.
Given that the required rate of return is 12%, company’s ROE in 2013 is 14% and the earnings retention rate is 38%, the stock’s intrinsic value is closest to:

99 Which of the following is least likely to be an assumption of the Gordon growth model?

Required rate of return is assumed to be constant in the Gordon growth model and thus is not expected to change.

100 Jill Angelica wishes to compute the fundamental leading P/E ratio of the firm SunBeams. She knows the retention ratio, the required rate of return on the stock and the worth of the dividend in dollars. Which of the following is most likely to be needed to help Angelica compute the leading P/E ratio?

The firm’s fundamental leading P/E Ratio is given by: Expected dividend payout ratio Required rate - growth rate of dividends Expected dividend payout ratio may be calculated by: 1– retention ratio. Therefore, the only bit of information needed for computation is expected constant growth rate of dividends.