FIN 402 MASTER 1 Predictable World / fin402master.com FIN 402 MASTER 1 Predictable World / fin402master. | Page 28

4.10
2011
4.62
2012
5.20
a. If 40 percent of earnings are paid out in dividends and the discount
rate is 11 percent, determine the present value of dividends. Round all
values you compute to two places to the right of the decimal point
throughout this problem.
b. If it is anticipated that the stock will trade at a P/E of 15 times 2012
earnings, determine the stock’s price at that point in time and discount
back the stock price for five years at 11 percent.
c. Add together parts a andb to determine the stock price under this
combined earnings and dividend model.
6. A company has $200,000 in inventory, which represents 20 percent
of current assets. Current assets represent 50 percent of total assets.
Total debt represents 30 percent of total assets. What is stockholders’
equity?
7. In the year 2007, the average firm in the S&P 500 Index had a total
market value of fives times stockholders’ equity (book value).
Assume a firm had total assets of $10 million, total debt of $6 million,
and net income of $600,000.
a. What is the percent return on equity?
b. What is the percent return on total market value? Does this appear
to be an adequate return on the actual market value of the firm?
8. A firm has the following financial data: