(Practice Questions, Sample Questions)
A) 4.17%.
B) 9.51%.
C) 42%.
[Explanation: (C) The value per share using the new estimates is $35.33 = [$2.0(1.06) / 0.12 – 0.06)] and the percentage increase in the value per share will be 10.
42% = [(35.33 – 32.00) / 32.00] × 100%]
A) $28.09.
B) $27.07.
C) $29.78
[Explanation: (C) The terminal value is $29.78, and that is the price an investor should be willing to pay at the end of year 2. The correct answer is shown below.
Year
Dividend
1
$1.0600
2
$1.1236
3
$1.1910
V3:$1.191/(0.10 – 0.06) = $29.78]
A) $3.00.
B) $3.15.
C) $13.65.
[Explanation: (B) The first step is to determine 2002 dividends paid as ($8,000,000 + $5,000,000 ? 10,000,000) = $3,000,000. The next step is to find the dividend per share ($3,000,000 / 1,000,000 shares) = $3.00 per share. Applying the 5% growth rate, next year’s expected dividend is $3.15, or $3.00 × 1.05.]
52 and is projected to grow at 12%. If the required rate of return is 11%, what is the current value based on the Gordon growth model?
A) unable to determine value using Gordon model.
B) $58.24.
C) $39.47.
[Explanation: (A) The Gordon growth model cannot be used if the growth rate exceeds the required rate of return.]
A) $29.76.
B) $29.50.
C) $30.68.
[Explanation: (C) The current value of the shares is $30.68:
V0 = [$1.77(1 + 0.04)] / (0.10 – 0.04)] = $30.68.]
A) 8%.
B) 9%.
C) 7%.
[Explanation: (B) The required return is 9%: r = [$1.22(1 + 0.05) / $32.03] + 0.05 = 0.09 or 9%]
A) $53.00.
B) $50.00.
C) $28.57.
[Explanation: (A) The value of the firm’s stock is: $4 × [1.06 / (0.14 ? 0.06)] = $53.00]
CFA Level 2 - Equity Session 11 - Reading 42 Discounted Dividend Valuation - LOS c. (2023, Aug 02). Retrieved from https://paperap.com/cfa-level-2-equity-session-11-reading-42-discounted-dividend-valuation-los-c/