MODULE 2 – STOCK VALUATION ASSIGNMENT

Answers:

1. TRUE

2. TRUE

3. TRUE

4. TRUE

5. TRUE

6. A

7. E

8. A

9. A

10. A

11. D

12. D

13. E

14. E

15. D
 MODULE 2 – STOCK VALUATION ASSIGNMENT

Solutions:

P 1−P0 ( 25∗1 .06 )−25

6. = =0.06∨6 %
P0 25
D1 2.5
7. = =₱ 57.80
K s−g 10.325 %−6 %

K s =k RF + β (k p −k RF )
= 0.04 + 1.15 (0.095- 0.04)

= 10.325 %

PMT 1.15
8. P0= = = ₱ 15
r 0.10
9. PRESENT VALUES
D1 = 1.75 * 1.25 = 2.1875 2.1875 * 0.8929 = 1.9531

D2 = 2.1875 * 1.25 = 2.7344 2.7344 * 0.7972 = 2.1798

D3 = 2.7344 * 1.25 = 3.418 3.418 * 0.7118 = 2.4329

P3 = 3.418 * 1.06 60.38 * 0.7118 = 42.98

12% - 6%
= 60.38
Total P0 = 49.5458

10. Total Market Value = Value of Operations + Short-term Investments

= 2,400,000,000 + 0
= 2,400,000,000

Total Equity = Total Market Value - MV of Debt and Preferred

=2,400,000,000 – 240,000,000 – 600,000,000 - 100,000,000
=1,460,000,000
Total Equity 1,460 , 000,000
P 0= = =₱ 48.67
No .of Shares 30 , 000,000

D1 1 ( 1.054 )
11. P0= = =₱ 17.57
K s −g 0.11 4−0 . 05 4
D1 0.75 ( 1.0 65 )
12. P0= = =₱ 1 4 .5 2
K s −g 0.12−0.0 65

K s =k RF + β ( k p−k RF )
 MODULE 2 – STOCK VALUATION ASSIGNMENT

= 0.045 + 1.25 (0.105 - 0.045)

= 12%

13. Preference shares quarterly dividend= $1

Annual Dividend = 1*4 = $4
Preferred stock price = $45
Nom reg. return = Annual Dividend/Price
= $4/$45
= 0.08888 or 8.89%
D1 1.25
14. K s =
P0
+ g=( )
44
+0.055 = 8.3409 or 8.34%

15.

Year Growth rate Dividends PVF of 9% PV

1 30% 1.716 .9174 1.5743
2 10% 1.8876 .8417 1.5888
Total 3.1631

1.8876(1.05) 1.98198
P 2= = =49 .5495
9 %−5 % 0.04
Present value of P2 = 49.5495*0.8417 = 41.7048

Current MV of stocks = 41.7048 + 3.1631 = $44.8679