Ch 6 Homework

QUESTION

Time remaining: 2:15:07 1.value:1.00 pointsAbbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .90 and the risk-free rate was 4.33 percent. Assume a market risk premium of 7 percent. The high and low share price each year were: 20082009201020112012 High$50.00$49.90$59.50$61.10$57.40 Low37.5039.2048.8045.8041.30 The sustainable growth rate is 17.46 percent, and the required return is 10.63 percent. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.(Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.) Share price$ 2.value:1.00 pointsJJ Industries will pay a regular dividend of $1.50 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 9 percent, and the current share price is $58, what must the liquidating dividend be? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.) Liquidating dividend$ 3.value:1.00 pointsWhen a stock is going through a period of nonconstant growth for T periods, followed by constant growth forever, the residual income model can be modified as follows: P0=TEPSt + Bt -1 – Bt+PTΣt = 1(1 + k)t(1 + k)T where PT=BT+EPST (1 + g) – BT × kk – g Al’s Infrared Sandwich Company had a book value of $18.00 at the beginning of the year, and the earnings per share for the past year were $7.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will grow at 18.50 and 17.00 percent per year for the next four years, respectively. After four years, the growth rate is expected to be 6 percent. Molly believes the required return for the company is 10.60 percent. What is the value per share for Al’s Infrared Sandwich Company? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.) Value per share$ 4.value:1.00 pointsGiven the information below for HooYah! Corporation, compute the expected share price at the end of 2014 using price ratio analysis. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the “$” sign in your response.) Year200820092010201120122013 Price$15.00 $51.50 $123.00 $200.00 $90.00 $20.50 EPS–7.00 –6.29 –2.10 –.45 .03 .06 CFPS–16.00 –13.50 –3.10 –.15 .38 .08 SPS12.00 20.50 21.60 25.10 28.60 28.95 Share price P/E$ P/CF$ P/S$ ReferenceseBook & ResourcesWorksheet 5.value:1.00 pointsGiven the information below for StartUp.Com, compute the expected share price at the end of 2014 using price ratio analysis. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.) Year2010201120122013 PriceN/A$73.12$100.32$109.18 EPSN/A-8.00-.55-3.83 CFPSN/A-11.50-8.70-4.93 SPSN/A6.6010.1013.60 Share price$ 6.value:1.00 pointsJohnson Products earned $5.08 per share last year and paid a $2.00 per share dividend. If ROE was 13 percent, what is the sustainable growth rate?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.) Sustainable growth rate % 7.value:1.00 pointsAbbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use theValue Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .9 and the risk-free rate was 3.70 percent. Assume a market risk premium of 7 percent.The high and low share price each year were:20082009201020112012 High$50.00$49.90$59.50$61.10$57.40 Low37.5039.2048.8045.8041.301.What is the sustainable growth rate and required return for Abbott Laboratories? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.) Sustainable growth rate % Required return % 2.Using these values, calculate the 2013 share price of Abbott Laboratories stock according to the constant dividend growth model. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the “$” sign in your response.) Share price$ 8.value:1.00 pointsStar Light & Power increases its dividend 3.5 percent per year every year. This utility is valued using a discount rate of 15 percent, and the stock currently sells for $58 per share. If you buy a share of stock today and hold on to it for at least three years, what do you expect the value of your dividend check to be three years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.) Dividend$ 9.value:1.00 pointsBill’s Bakery expects earnings per share of $2.1 next year. Current book value is $3.8 per share. The appropriate discount rate for Bill’s Bakery is 12 percent. Calculate the share price for Bill’s Bakery if earnings grow at 2.5 percent forever. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.) Share price$ 10.value:1.00 pointsThe current price of Parador Industries stock is $45 per share. Current sales per share are $15.2, the sales growth rate is 3.5 percent, and Parador does not pay a dividend. The expected return on Parador stock is 18 percent. 1.Calculate the sales per share one-year ahead. (Round your answer to 2 decimal places. Omit the “$” sign in your response.) Sales per share$ 2.Calculate the P/S ratio one-year ahead. (Do not round intermediate calculations. Round your answer to 2 decimal places.) P/S ratio

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