Stock Valuation — Fully Solved Numerical Answers

Question 1

Problem: Company pays fixed dividend Rs. 8. Required return = 11%.

Zero Growth Model
P = D / r

D = 8
r = 0.11

P = 72.73

Question 2

Problem: Preferred dividend = Rs. 12. Required return = 9%.

Zero Growth
P = D / r

D = 12
r = 0.09

P = 133.33

Question 3

Problem: Dividend Rs. 5; r = 7%.

Zero Growth
P = D / r

D = 5
r = 0.07

P = 71.43

Question 4

Problem: Dividend Rs. 4.50; r = 8% and 10%.

Zero Growth
P = D / r

P at 8% = 4.50 / 0.08 = 56.25
P at 10% = 4.50 / 0.10 = 45.00

Question 5

Problem: Dividend Rs. 6; current price Rs. 75.

Zero Growth (Solve for r)
r = D / P

r = 6 / 75 = 8%

Question 6

Problem: D0 = 3; g = 4%; r = 10%.

Gordon Model
D1 = D0(1+g) = 3.12
P0 = D1 / (r - g) = 52.00

Question 7

Problem: D0=6; g=3%; r=9%.

Gordon
D1 = 6.18
P0 = 6.18 / (0.09 - 0.03) = 103.00

Question 8

Problem: D0=8; g=5%; r=14%.

D1 = 8.40
P0 = 8.40 / 0.09 = 93.33

Question 9

Problem: D1=4; g=8%; r=12%.

P0 = 4 / (0.12 - 0.08) = 100.00

Question 10

Problem: Price = 120; D0=5; g=4%.

D1 = 5.20
r = D1/P + g = 5.20/120 + 0.04 = 8.33%

Question 11

Problem: D1 = 10; g=7%; r=13%.

P0 = 10 / (0.13 - 0.07) = 166.67

Question 12

Problem: D0=7; g=6%; r=10%.

D1 = 7.42
P0 = 7.42 / 0.04 = 185.50

Question 13

Problem: D0=3; high g=20% (2 years); long g=6%; r=12%.

D1 = 3.60
D2 = 4.32
D3 = 4.58
P2 = 4.58 / 0.06 = 76.32

PV(dividends) = 6.66
PV(P2) = 60.84
P0 = 67.50

Question 14

Problem: D0=2; g=30% (3 yrs); long g=5%; r=11%.

D1=2.60, D2=3.38, D3=4.39
D4=4.61
P3=76.90

PV(div)=8.30
PV(P3)=56.22
P0 = 64.52

Question 15

Problem: D0=4; g=15% (4 yrs); long g=4%; r=10%.

D1=4.60, D2=5.29, D3=6.08, D4=7.00
D5=7.28
P4=121.26

PV(div)=17.90
PV(P4)=82.83
P0 = 100.73

Question 16

Problem: D0=1.80; g=25% (3 yrs); long g=6%; r=14%.

D1=2.25, D2=2.81, D3=3.52
D4=3.73
P3=46.58

PV(div)=6.51
PV(P3)=31.44
P0 = 37.95

Question 17

Problem: D0=5; g=18% (2 yrs); long g=3%; r=9%.

D1=5.90, D2=6.96
D3=7.17
P2=119.51

PV(div)=11.27
PV(P2)=100.59
P0 = 111.87

Question 18

Problem: D0=2.5; g=22% (3 yrs); long g=8%; r=15%.

D1=3.05, D2=3.72, D3=4.54
D4=4.90
P3=70.04

PV(div)=8.45
PV(P3)=46.05
P0 = 54.50

Question 19

Problem: D0=3; g=12% (4 yrs); long g=5%; r=11%.

D1=3.36, D2=3.76, D3=4.21, D4=4.72
D5=4.96
P4=82.61

PV(div)=12.27
PV(P4)=54.42
P0 = 66.69

Question 20

Problem: D0=10; g=10% (3 yrs); long g=4%; r=12%.

D1=11, D2=12.10, D3=13.31
D4=13.84
P3=173.03

PV(div)=28.94
PV(P3)=123.16
P0 = 152.10

Question 21

Problem: D0=1.50; g=18% (2 yrs); long g=6%; r=10%.

D1=1.77, D2=2.09
D3=2.21
P2=55.35

PV(div)=3.34
PV(P2)=45.74
P0 = 49.08

Question 22

Problem: H-model: D0=4; gS=14%; gL=5%; N=8; r=11%.

Term1 = D0 × (1+gL) / (r − gL) = 70.00
Term2 = D0 × H × (gS − gL) / (r − gL) = 24.00

P0 = 94.00

Question 23

Problem: H-model: D0=5; gS=18%; gL=6%; H=3; r=12%.

Term1 = 88.33
Term2 = 30.00

P0 = 118.33

Question 24

Problem: FCFF valuation.

PV(FCFF1–3) = 567,242.67
Terminal value = 5,460,000
PV(Terminal) = 4,102,178.81
Firm value = 4,669,421.49
Equity value = 4,319,421.49
Per share = 172.78

Question 25

Problem: FCFF valuation.

PV(FCFF1–3) = 1,384,949.68
Terminal value = 12,480,000
PV(Terminal) = 9,636,849.83
Firm value = 11,021,799.51
Equity value = 9,921,799.51
Per share = 248.04

End of solutions.