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Equity Valuation / Quiz

Equity Valuation: Concepts and Basic Tools

This quiz is a part of the CFA Level 1 reading 'Equity Valuation: Concepts and Basic Tools'.

10 questions

    1. A company has issued $100 par preferred stock, and pays an annual dividend of $8. The required return is 10%. Calculate the value of the preferred stock.
    1. An equity analyst estimates that the dividend of a company is expected to grow by 6%. The dividends paid last year were $10. Assuming the required rate of return on equity is 12%, the value of the stock will be closest to:
    1. A company is expected to pay dividends of $5 next year. The expected growth rate is 6% and the required rate of return is 10%. Calculate the intrinsic value of the stock.
    1. Discounted cash flow analysis is a measure of the _______ value of a firm.
    1. When deriving enterprise value from equity value, which of the following balance sheet line items should be included? (Identify the most relevant answer.)
    1. Based on the following data, calculate the enterprise value.
    • Equity Value: USD 100 m
    • Total Debt: USD 10 m
    • Cash and Equivalents: USD 10 m

    Note: There is no preferred stock or minority interest.

    1. Assuming an ROE of 12% and a dividend payout ratio of 70%, calculate the company's sustainable growth rate.
    1. Historically, P/E ratios have tended to be _________.
    1. You wish to earn a return of 10% on each of two stocks, X and Y. Stock X is expected to pay a dividend of $4 in the upcoming year while Stock Y is expected to pay a dividend of $5 in the upcoming year. The expected growth rate of dividends for both stocks is 6%. The intrinsic value of stock X:
    1. The most appropriate discount rate to use when applying a FCFF valuation model is:
10 left