# BUSINESS

46. **P/E Ratio Model and Future Price** Walmart (WMT) recently earned a profit of $3.13 per share and has a P/E ratio of 14.22. The dividend has been growing at a 12.5 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio *declined* to 10 in five years.

A. $6.08, $5.04 respectively

B. $72.22, $50.40 respectively

C. $80.20, $56.40 respectively

D. $86.46, $60.80 respectively

47. **P/E Ratio Model and Future Price** Target Corp (TGT) recently earned a profit of $3.57 earnings per share and has a P/E ratio of 17.3. The dividend has been growing at a 14 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio *increased* to 23 in five years.

A. $118.85, $158.01 respectively

B. $137.19, $182.39 respectively

C. $173.87, $231.15 respectively

D. $308.81, $410.55 respectively

48. **Value of Future Cash Flows** A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 14 percent, what is its value?

A. $25.00

B. $36.60

C. $62.87

D. $72.30

49. **Value of Future Cash Flows** A firm recently paid a $0.30 annual dividend. The dividend is expected to increase by 8 percent in each of the next four years. In the fourth year, the stock price is expected to be $60. If the required rate for this stock is 10 percent, what is its value?

A. $15.00

B. $20.41

C. $42.13

D. $45.30

50. **Constant Growth Stock Valuation** Best Buy Co (BBY) paid a $0.27 dividend per share in 2003, which grew to $0.49 in 2007. This growth is expected to continue. What is the value of this stock at the beginning of 2007 when the required rate of return is 17.23 percent?

A. $2.84

B. $42.24

C. $49.03

D. $50.78

51. **Constant Growth Stock Valuation** Target Corp (TGT) paid a $0.21 dividend per share in 2000, which grew to $0.52 in 2007. This growth is expected to continue. What is the value of this stock at the beginning of 2007 when the required rate of return is 14.77 percent?

A. $3.52

B. $55.32

C. $62.97

D. $63.49

52. **Changes in Growth and Stock Valuation** Consider a firm that had been priced using a 10 percent growth rate and a 14 percent required rate. The firm recently paid a $1.00 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12 percent rate. How much should the stock price change (in dollars and percentage)?

A. $25, 1%

B. $25, 100%

C. $28.50, 1.04%

D. $28.50, 104%

53. **Changes in Growth and Stock Valuation** Consider a firm that had been priced using a 6 percent growth rate and a 9 percent required rate. The firm recently paid a $0.50 dividend. The firm has just announced that because of a new joint venture, it will likely grow at an 8 percent rate. How much should the stock price change (in dollars and percentage)?

A. $33.33, 67%

B. $33.33, 198%

C. $36.33, 67%

D. $36.33, 206%

54. **Variable Growth** A fast growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 25 percent rate for the next 3 years. Afterwards, a more stable 12 percent growth rate can be assumed. If a 15 percent discount rate is appropriate for this stock, what is its value?

A. $5.00

B. $22.62

C. $25.75

D. $36.46

55. **Variable Growth** A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a 25 percent rate for the next 3 years. Afterwards, a more stable 8 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?

A. $12.50

B. $75.93

C. $83.13

D. $120.24

56. **P/E Model and Cash Flow Valuation** Suppose that a firm’s recent earnings per share and dividends per share are $3.00 and $1.50, respectively. Both are expected to grow at 10 percent. However, the firm’s current P/E ratio of 20 seems high for this growth rate. The P/E ratio is expected to fall to 16 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.

A. $31.68

B. $40.15

C. $46.89

D. $60.00

57. **P/E Model and Cash Flow Valuation** Suppose that a firm’s recent earnings per share and dividends per share are $2.50 and $1.00, respectively. Both are expected to grow at 10 percent. However, the firm’s current P/E ratio of 22 seems high for this growth rate. The P/E ratio is expected to fall to 18 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 14 percent required rate.

A. $37.51

B. $37.64

C. $42.14

D. $72.47

58. At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 200 shares of General Electric (GE), which trades at $45.19?

A. $9,038.00

B. $4528.95

C. $9,047.95

D. $4,595.95

59. At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you receive after selling 250 shares of General Electric (GE), which trades at $55.19?

A. $14,037.95

B. $11,958.55

C. $12,174.95

D. $13,789.55

60. A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the preferred stock is 9.3%, what is the value of the stock?

A. $34.89

B. $32.26

C. $38.49

D. $31.13

61. Ultra Petroleum (UPL) has earnings per share of $1.75 and P/E of 42.56. What is the stock price?

A. $74.48

B. $76.68

C. $85.68

D. $112.98

62. JPM has earnings per share of $3.75 and P/E of 47. What is the stock price?

A. $174.08

B. $176.25

C. $185.95

D. $112.98

63. A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year. Financial analysts believe the stock will be at their price target of $125.00 in two years. Compute the value of this stock with a required rate of return of 15%.

A. $78.34

B. $81.05

C. $87.13

D. $99.09

64. Financial analysts forecast ABC Inc. growth for the future to be 12%. ABC’s recent dividend was $1.60. What is the value of ABC stock when the required return is 15%?

A. $59.73

B. $63.72

C. $79.81

D. $91.02

65. A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to increase at a rate of 30% rate for the next 4 years. Afterwards, a more stable 7% growth rate can be assumed. If a 10% discount rate is appropriate for this stock, what is its value?

A. $60.48

B. $60.18

C. $61.34

D. $73.86

66. A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a rate of 15% rate for the next 3 years. Afterwards, a more stable 6% growth rate can be assumed. If a 10% discount rate is appropriate for this stock, what is its value?

A. $33.54

B. $37.99

C. $39.37

D. $42.03

67. A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10% in each of the next three years. In the third year, the stock price is expected to be $110. If the required return is 15%, what is its value?

A. $62.53

B. $68.95

C. $73.71

D. $78.67

68. Campbell Soup Co paid a $1.55 dividend per share in 2004, which grew to $1.95 in 2009. This growth is expected to continue. What is the value of this stock at the beginning of 2010 when the required return is 10.5 percent?

A. $35.20

B. $34.16

C. $33.48

D. $32.17

69. Consider a firm that had been priced using a 12 percent growth rate and a 16 percent required return. The firm recently paid a $5.00 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12.5 percent rate. How much should the stock price change (in dollars and percentage)?

A. $21.50; 13.72%

B. $21.50; 16.14%

C. $20.71; 14.79%

D. $20.71; 19.93%

70. Suppose that a firm’s recent earnings per share and dividend per share are $2.50 and $1.00, respectively. Both are expected to grow at 5 percent. However, the firm’s current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 within five years. Compute a value for this stock. Assume a 10 percent required rate.

A. $36.19

B. $38.86

C. $40.31

D. $42.00

71. A firm has been losing sales due to technological obsolescence. It projects growth for the future to be -2%. Its recent divided was $2.00. What is the value of this stock when the required return is 9%?

A. $28.00

B. $29.14

C. $17.82

D. $15.52

72. A firm has been losing sales due to technological obsolescence. It projects growth for the future to be -3%. Its recent divided was $2.50. What is the value of this stock when the required return is 7%?

A. $28.17

B. $24.25

C. $17.42

D. $15.53

73. To list a stock on the NYSE, a company must meet minimum requirements that include all of the following except ____________________.

A. Firm size

B. Total number of stockholders

C. Level of trading volume

D. P/E Ratio