On To Stocks …
Feb. 1st, 2004 09:34 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
sinjunSo, the next 3 questions have to do with valuing stocks. Yay? Anyway, that is where I’m at, and yes, I still hate finance.
Still, I bring you
Question 5
The company currently pays out $1.00 per share in dividends and expects these dividends to grow 15% a year for the next 5 years and 6% a year forever after that. The dividend payout ratio is expected to double after the fifth year. If investors require a 12.5% return on stocks of equivalent risk, what is the value of the stock?
The Supernormal Growth Model can be used in this case, to determine the value of the stock. We need to find out the dividends for years 1 through 5.
Year Total Dividend per Share
1 D1 = 1.00 * 1.15 = $1.15
2 D2 = 1.15 * 1.15 = $1.32
3 D3 = 1.32 * 1.15 = $1.52
4 D4 = 1.52 * 1,15 = $1.75
5 D5 = 1.75 * 1.15 = $2.01
The price in year 5 can be determined via the following formula:
P5 = D5 * (1 + g)/(r-g) where g is the long-run growth rate
= 2.01 * (1 + 0.06) / (0.125 – 0.06)
= $32.778
P0 = price at time 0, which is what we want to figure out
= The present value of the total dividends + the present value of the price at time 5
= [D1 / (1+r)] + [D2 / (1+r)**2] + [D3 / (1+r)**3] + [D4 / (1+r)**4] + [D5 / (1+r)**5] + [P5 / (1 + r)**5]
= 1.15 / 1.125 + 1.32 / 1.125**2 + 1.52 / 1.125**3 + 1.75 / 1.125**4 + 2.01 / 1.125**5 + 32.778/1.125**5
= 1.022 + 1.045 + 1.068 + 1.092 + 1.116 + 18.189
= 23.53
So, the value of the stock now is $23.53
The Dividend payout ratio = D1 / EPS = dividend per share / earnings per share for a 12 month period. We do not know what the annual earnings were, so cannot verify if the dividend payout ratio does in fact double after the fifth year.
And then there's
Question 8 - Okay, the tables suck. Sorry.
Use the following information for RST Corp. for the following questions (assume the tax rate is 34%):
2000 2001
Sales $ 6150 $ 6600
Depreciation 885 885
COGS 2115 2403
Other Expenses 510 420
Interest 411 474
Cash 3225 3297
Accounts Receivable 4269 4809
Short-Term Notes Payable 624 585
Long-term Debt 10800 12600
Net Fixed Assets 27045 27690
Accounts Payable 3387 3285
Inventory 7590 7800
Dividends 750 825
a) Draw up an income statement and balance sheet for this company for 2000 and 2001.
RST Corp
Balance Sheet as of December 31, 2000 and 2001
2000 2001 2000 2001
Current Assets Current Liabilities
Cash 3225 3297 Accounts Payable 3387 3285
A/R 4269 4809 Short-Term Notes Payable 624 585
Inventory 7590 7800 Total Current Liabilities 4011 3870
Total Current Assets 15084 15906 Long-term Debt 10800 12600
Net Fixed Assets 27045 27690 Total Liabilities 14811 16470
Shareholder Equity 27318 27126
Total Assets 42129 43596 Total Liabilities and Shareholder Equity 42129 43596
RST Corp
Income Statement as of December 31, 2000.
Sales $ 6150
COGS 2115
Depreciation 885
Other Expenses 510
Earnings before interest and taxes 2640
Interest 411
Taxable Income 2229
Taxes (34%) 758
Net Income 1471
Dividends 750
Addition to Retained Earnings 721
RST Corp
Income Statement as of December 31, 2001.
Sales $ 6600
COGS 2403
Depreciation 885
Other Expenses 420
Earnings before interest and taxes 2892
Interest 474
Taxable Income 2418
Taxes (34%) 822
Net Income 1596
Dividends 825
Addition to Retained Earnings 771
b) For 2001, calculate the cash flow from assets, cash flow to creditors and cash flow to shareholders.
Operating Cash Flow= revenues – costs, not including depreciation or interest, but including taxes = earnings before interest and taxes + depreciation – taxes
= 2892 + 885 – 822 = 2955
Capital Spending = Ending fixed assets – beginning fixed assets + depreciation
= 27690 – 27045 + 885 = 1530
Change in Net Working Capital
Net Working Capital at the end of 2000 = current assets – current liabilities
=15084 – 4011 = 11,073
Net Working Capital at the end of 2001 = current assets – current liabilities
= 15906 - 3870
= 12,036
So, the change in net working capital = ending NWC – Beginning NWC
= 12,036 – 11,073
= 963
Cash flow from assets = Operating Cash Flow – net capital spending – additions to NWC
= 2955 – 1530 – 963
= 462
Cash Flow To Creditors
= Interest paid – net new borrowing
= 474 – (12600-10800) = 474 - 1800 = -1326
Cash Flow to Shareholders
= Dividends – net new equity raised
= 825 – (27126 – 27318 + 771)
=825 – (-192 - 771)
= 825 – ( -963) = 1788
Check: Cash flow to creditors + cash flow to shareholders = -1326 + 1788 = 462
Questions 6 and 7 are obnoxious. I am having more trouble than I like with them.
Still, I bring you
Question 5
The company currently pays out $1.00 per share in dividends and expects these dividends to grow 15% a year for the next 5 years and 6% a year forever after that. The dividend payout ratio is expected to double after the fifth year. If investors require a 12.5% return on stocks of equivalent risk, what is the value of the stock?
The Supernormal Growth Model can be used in this case, to determine the value of the stock. We need to find out the dividends for years 1 through 5.
Year Total Dividend per Share
1 D1 = 1.00 * 1.15 = $1.15
2 D2 = 1.15 * 1.15 = $1.32
3 D3 = 1.32 * 1.15 = $1.52
4 D4 = 1.52 * 1,15 = $1.75
5 D5 = 1.75 * 1.15 = $2.01
The price in year 5 can be determined via the following formula:
P5 = D5 * (1 + g)/(r-g) where g is the long-run growth rate
= 2.01 * (1 + 0.06) / (0.125 – 0.06)
= $32.778
P0 = price at time 0, which is what we want to figure out
= The present value of the total dividends + the present value of the price at time 5
= [D1 / (1+r)] + [D2 / (1+r)**2] + [D3 / (1+r)**3] + [D4 / (1+r)**4] + [D5 / (1+r)**5] + [P5 / (1 + r)**5]
= 1.15 / 1.125 + 1.32 / 1.125**2 + 1.52 / 1.125**3 + 1.75 / 1.125**4 + 2.01 / 1.125**5 + 32.778/1.125**5
= 1.022 + 1.045 + 1.068 + 1.092 + 1.116 + 18.189
= 23.53
So, the value of the stock now is $23.53
The Dividend payout ratio = D1 / EPS = dividend per share / earnings per share for a 12 month period. We do not know what the annual earnings were, so cannot verify if the dividend payout ratio does in fact double after the fifth year.
And then there's
Question 8 - Okay, the tables suck. Sorry.
Use the following information for RST Corp. for the following questions (assume the tax rate is 34%):
2000 2001
Sales $ 6150 $ 6600
Depreciation 885 885
COGS 2115 2403
Other Expenses 510 420
Interest 411 474
Cash 3225 3297
Accounts Receivable 4269 4809
Short-Term Notes Payable 624 585
Long-term Debt 10800 12600
Net Fixed Assets 27045 27690
Accounts Payable 3387 3285
Inventory 7590 7800
Dividends 750 825
a) Draw up an income statement and balance sheet for this company for 2000 and 2001.
RST Corp
Balance Sheet as of December 31, 2000 and 2001
2000 2001 2000 2001
Current Assets Current Liabilities
Cash 3225 3297 Accounts Payable 3387 3285
A/R 4269 4809 Short-Term Notes Payable 624 585
Inventory 7590 7800 Total Current Liabilities 4011 3870
Total Current Assets 15084 15906 Long-term Debt 10800 12600
Net Fixed Assets 27045 27690 Total Liabilities 14811 16470
Shareholder Equity 27318 27126
Total Assets 42129 43596 Total Liabilities and Shareholder Equity 42129 43596
RST Corp
Income Statement as of December 31, 2000.
Sales $ 6150
COGS 2115
Depreciation 885
Other Expenses 510
Earnings before interest and taxes 2640
Interest 411
Taxable Income 2229
Taxes (34%) 758
Net Income 1471
Dividends 750
Addition to Retained Earnings 721
RST Corp
Income Statement as of December 31, 2001.
Sales $ 6600
COGS 2403
Depreciation 885
Other Expenses 420
Earnings before interest and taxes 2892
Interest 474
Taxable Income 2418
Taxes (34%) 822
Net Income 1596
Dividends 825
Addition to Retained Earnings 771
b) For 2001, calculate the cash flow from assets, cash flow to creditors and cash flow to shareholders.
Operating Cash Flow= revenues – costs, not including depreciation or interest, but including taxes = earnings before interest and taxes + depreciation – taxes
= 2892 + 885 – 822 = 2955
Capital Spending = Ending fixed assets – beginning fixed assets + depreciation
= 27690 – 27045 + 885 = 1530
Change in Net Working Capital
Net Working Capital at the end of 2000 = current assets – current liabilities
=15084 – 4011 = 11,073
Net Working Capital at the end of 2001 = current assets – current liabilities
= 15906 - 3870
= 12,036
So, the change in net working capital = ending NWC – Beginning NWC
= 12,036 – 11,073
= 963
Cash flow from assets = Operating Cash Flow – net capital spending – additions to NWC
= 2955 – 1530 – 963
= 462
Cash Flow To Creditors
= Interest paid – net new borrowing
= 474 – (12600-10800) = 474 - 1800 = -1326
Cash Flow to Shareholders
= Dividends – net new equity raised
= 825 – (27126 – 27318 + 771)
=825 – (-192 - 771)
= 825 – ( -963) = 1788
Check: Cash flow to creditors + cash flow to shareholders = -1326 + 1788 = 462
Questions 6 and 7 are obnoxious. I am having more trouble than I like with them.
