1- Stock Valuation

Dividend $
D0 1.12
D1 1.176
D2 1.2348
D3 1.296
D4 1.36

Calculate the value of constant growth

2- Ali is an investor and always seek for new opportunities for getting more profit. Recently he
came to know about Nabeel Food & co. The company is earning good profit and due to recent
changes in the import duties it is expected that the company growth will be 40% for first 2 years
then 25% for 3rd to forth year and will be on average constant growth of 6% onward. The last
paid dividend of the company is PKR-2.05 and cost of equity is 12.5%.
 Draw the time line to present the all available in formation
 Calculate the value of first five expected dividends
 Calculate the current value of Nabeel Food & co stock.

3- The current dividend on a stock is $2 per share and investors require a rate of return of 12%.
Dividends are expected to grow at a rate of 20% per year over the next three years and then at a
rate of 5% per year from that point on.
The market value of the share is 50 your task is to calculate the share price as per the above
information and find out either this stock is over-valued or under-valued and by what margin.

4- Find the price for a stock given that the required return is 13.8%, the current dividend is $1.7 per
share, dividends are expected to grow at a rate of 9% during year 1, dividends are expected to
grow at a rate of 20% during year 2, dividends are expected to grow at a rate of 17% during year
3, and dividends are expected to grow at a rate of 6% per year from that point on. (ans=29.12)
5- FCF cash flows are as follow

Year FCF
(PKR)
1 400000
2 450000
3 520000
4 560000
5 600000
Market value of the company debt = 3200,000
Market value of the preferred stock = 900,000
After 5 years growth rate of company will be 4%
The WACC = 10%
Calculate company value of stock ?
6- Common stock valuation Perry Motors’ common stock just paid its annual dividend of $1.80
per share. The required return on the common stock is 12%. Estimate the value of the common
stock under each of the following assumptions about the dividend:
a. Dividends are expected to grow at an annual rate of 0% to infinity.
b. Dividends are expected to grow at a constant annual rate of 5% to infinity.
c. Dividends are expected to grow at an annual rate of 5% for each of the next 3 years, followed
by a constant annual growth rate of 4% in years 4 to infinity

7=Free cash flow valuation Erwin Footwear wishes to assess the value of its Active Shoe
Division. This division has debt with a market value of $12,500,000 and no preferred stock.
Its weighted average cost of capital is 10%. The Active Shoe Division’s estimated free cash
flow each year from 2016 through 2019 is given in the following table. Beyond 2019 to
infinity, the firm expects its free cash flow to grow at 4% annually.

FCF
Year (PKR)
2016 800000
2017 1200000
2018 1400000
2019 1500000
a. Use the free cash flow valuation model to estimate the value of Erwin’s entire Active Shoe
Division.
b. Use your finding in part a along with the data provided to find this division’s common stock
value.
c. If the Active Shoe Division as a public company will have 500,000 shares outstanding, use
your finding in part b to calculate its value per share.