QUIZ: Equity Valuation

Intrinsic Value vs Market Price

Bobby read an analyst’s recommendation that WM shares are at least 30% undervalued based on current market price. Which of these is the least valid reason that Bobby is unconvinced and chooses not to buy WM shares?

All About Dividends

Arrange chronologically the sequence of events for a typical dividend payout. (Drag and drop)

All About Dividends

Which of the following is equivalent to a company issuing a 10% stock dividend?

Present Value Models – Dividend Discount Models

A stock is currently priced at $25 and there are 3,000 outstanding shares. An analyst estimates that the FCFE of the firm for the next 2 years will be $6,000 and $6,600 respectively. The analyst also expects the share price to rise to $29 by the end of these 2 years.

Using the FCFE model with a required return of 8%, the intrinsic price of the stock today is closest to:

Present Value Models – Dividend Discount Models

A preferred stock that is $100 par per share pays 7% dividend annually. The current market price is $106.80.

What is the intrinsic value of the preferred stock if the required return is 6.5%?

Present Value Models – Gordon Growth Model

A&C Corp is a tech company that is expected to experience a high growth of 14% for the next 2 years, slowing to a perpetual growth rate of 6% thereafter. The company just paid a dividend of $3.

Using the Gordon Growth Model, estimate the intrinsic value of A&C’s shares in 2 years time. Assume a required return of 11%.

Present Value Models – Gordon Growth Model

A&C Corp is a tech company that is expected to experience a high growth of 14% for the next 2 years, slowing to a perpetual growth rate of 6% thereafter. The company just paid a dividend of $3.

Using the terminal value of $82.68 at end of 2nd year (based on GGM), calculate the intrinsic value of the A&C stock today. Required rate of return is 11%.

Present Value Models – Gordon Growth Model

A company had a net income of $1.5 million and the beginning owner’s equity on its books was $12 million. The company paid $600,000 dividend to common stockholders and it does not have any preference stockholders.

Calculate the sustainable growth rate of the company based on the information given.

Multiplier Models – Price Multiple Model

Tangy Corp is a fast growing company and is expected to experience constant dividend growth of 8%. The company is expected to pay a dividend of $4 next year, and the EPS is expected to be $13 per share. Tangy’s shares currently trade at 12.4x P/E and have a required return of 11%. Tangy’s shares are most likely _____________ based on its fundamentals.

Multiplier Models – Price Multiple Model

IMBD’s stock currently trades at $45 and there are 100,000 shares outstanding. Its current book value of equity stands at $3 million. If the industry average P/B is 1.8x, determine the intrinsic price of IMBD stock using the price multiples approach.

Multiplier Models – Price Multiple Model

IMBD’s EV/EBITDA stands at 9.8x, while the industry average EV/EBITDA is 14.2x. Rosa concludes that IMBD’s common shares are undervalued solely based on the fact that IMBD’s EV/EBITDA is lower than industry average. Which of the following statements is most accurate about Rosa’s conclusion.

Asset-based Valuation Models

A company’s assets have recently been valued at $48 million by a professional valuator, and the company’s debt are worth $13 million based on market value. The company does not have any outstanding preferred shares, and has 400,000 outstanding common shares trading at $64. Based on the asset-based valuation model, the company’s shares are most likely _________.