Question 1

Adelaide Industries expects to have earnings per share of $3.20 in the coming year.Adelaide has a return on new investment of 11%.If the firm's dividend payout rate is 60%,and its equity cost of capital is 8%,what is the value of Adelaide's stock?

Accepted Answer

A)  $24.00
B)  $53.33
C)  $40.00
D)  $88.89
E)  $91.43F) A) and E)
G) B) and D)

Question 2

Harbour Corporation pays a dividend of $2.15 per year,which is expected to grow at a rate of 3% per year.Harbour has a cost of capital of 12%,and an EPS of $4.42.Its competitor,Pallantine Inc.,pays a yearly dividend of $1.25 per year,which is expected to grow at a rate of 6% per year.Pallantine has an EPS of $5.19.Solve for Pallantine's cost of capital using the method of comparables.

Accepted Answer

A)  9.8%
B)  11.2%
C)  10.5%
D)  11.9%
E)  12.0%F) A) and B)
G) A) and C)

Exam 7: Valuing Stocks

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Adelaide Industries expects to have earnings per share of $3.20 in the coming year.Adelaide has a return on new investment of 11%.If the firm's dividend payout rate is 60%,and its equity cost of capital is 8%,what is the value of Adelaide's stock?

Correct Answer
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Exam 7: Valuing Stocks

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Adelaide Industries expects to have earnings per share of $3.20 in the coming year.Adelaide has a return on new investment of 11%.If the firm's dividend payout rate is 60%,and its equity cost of capital is 8%,what is the value of Adelaide's stock?

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Correct Answer
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Correct Answer
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