TUTORIAL: STOCK VALUATION 1.

Suppose the investor of Maju Jaya Berhad expect the price of the firms common stock next year to be RM15. The company is planning to pay a dividend of RM0.80 per share. The investors required rate of return is 12 percent. Determine the value of common stock today. (ANSWER: RM14.11) 2. You plan to purchase a share that you expect will pay a dividend of RM1.00 per share in year 1, RM1.25 per share in year 2 and RM1.50 per share in year 3 after which you plan to sell the shares for RM15 each. If your required rate of return is 15%, find the value of the share today. (ANSWER: RM12.66) 3. McBurger is offering a stock that pays a dividend of RM1.10 per share. The dividend is expected to continue indefinitely. If you are requiring a rate of return of 9% for McBurgers stock, what is the value of the stock? (ANSWER: RM12.22) 4. Company XYZ just declared a dividend of RM2.00 per share. Determine the dividend payment for year 1, 2 and 3 if the expected growth rate is 5% per year. (ANSWER: D1= RM2.10. D2= RM2.205, D3 = RM2.315) 5. Delicious Food Company is expected to pay a dividend of RM1.50 next year. If Delicious Food investors required a return of 13%, what should be the value of Delicious Foods common stock? Delicious Food expects to grow at a rate of 7% per year. (ANSWER: RM25) 6. Malaysian Components common stock dividend has been growing at a rate of 6% per year. At the end of last year, the company paid a dividend of RM1.30. Investors require a return of 9% on this stock. What is the value of a share of Malaysian Components common stock? (ANSWER: RM45.93) 7. Syarikat KayuJatiBerhad just paid a dividend of RM0.60 per share. The companys stocks are currently selling at RM12 per share. If dividends are expected to grow at 6.5% constant rate and the required rate of return is expected to be at 10%, what would be the price of KayuJatis stock 3 years from today? (ANSWER: RM22.05) 8. The expected dividend on Malaysian Motors is RM2.20 per share. The current price of Malaysian Motors common stock is RM20.00. The investors required rate of return on Malaysian Motors is 14%. What is the companys dividend growth rate? (ANSWER: 3%)

9. The price of Roti Canai International (RCI) common stock is currently selling at RM10 per share. Dividend is expected to grow at 6% indefinitely. RCI just declared a dividend of RM1.50 per share. What is the rate of return on this investment? (ANSWER: 21.9%) 10. Pulp Manufacturing Company is expected to pay a dividend of RM3 per share of common stock in one year. The dollar amount of the dividends is expected to grow at a constant rate of 4 percent per year. The required rate of return from shares of similar common stock in the market is 16%. a. Determine the current price of Pulp Manufacturing common stock. (ANSWER: RM25) b. Assuming the cash dividend amount and the growth rate are accurate, what is the return rate on your investment in Pulp Manufacturing common stock if you purchase the stock at RM30 per share? (ANSWER: 14%) MazushitaBhds dividends are expected to grow at a rate of 30% per year for the next three years. At the end of three years, the dividends are expected to grow at 6% per year indefinitely. Mazushita has just paid a dividend of RM0.80 per share. The required rate of return for Mazushita common stock is 15%. What is the value of Mazushita common stock? (ANSWER: RM16.69) Ahmad, an investment analyst is expecting a decline of 8% in the growth rate of dividends for DADY & YNA Inc. for the next 2 years, after which the dividend growth rate is expected to increase to 12% indefinitely. The companys earnings per share (EPS) are RM8.00 and the dividend payout ratio is 30%. The investors required rate of return on this stock is 20%. Find the intrinsic value of the stock today on the basis of Ahmads analysis. (ANSWER: RM22.90) Gajah Duduk Corp. has just paid a dividend of RM1.20 per share. The companys current stock price is RM20 each. If the dividend is expected to grow at a constant rate of 7% and the investors required rate of return is expected to remain at the same rate, what will be the price of the companys common stock four years from today? (ANSWER: k=13.4%, P4=RM26.30) Citra SatriaBerhad paid a dividend of RM1.00 per share last year. The dividends of the company are expected to grow at an annual rate of 8%. The investors required of return is 20% per year. What is the price of the Citra Satria stock today? (ANSWER: k=13.4%, P4=RM14.38)

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Three years ago you bought a stock for RM8.00. At the end of each of the three years, you received dividend of RM0.80 per share. If you wish to have a return of 30%, at what price you must sell the stock at the end of the third year? (ANSWER: P3 = RM14.38) Kumpulan Cerias stock is currently selling for RM14 per share. The stock is expected to pay RM0.90 dividend at the end of next year. It is estimated that the stock will sell for RM18 at the end of one year. a. Assuming the dividend and price forecast are accurate, would you pay RM14 for the stock and hold it for one year if your required rate of return is 12%? (ANSWER: RM16.87 buy stock since it is underprice {value>market price}) Given the value of a stock is RM14 and the expected dividend is RM1.20, what would the price be at the end of one year to justify the purchase today, if your required rate of return is 15%? (ANSWER: P1 = RM14.90) You bought a stock for RM22. The dividend payment is expected to be at RM1.10. If you required rate of return is 14% and you expect the dividend to grow at a constant rate in the future, what is the value of the stock 3 years from today? (ANSWER: g = 9%, P3 = RM28.50) DYNA Corp. is a new company. Its dividend is expected to decline at a rate of 15% during the next 2 years and then grow at 15% thereafter. DYNAs last dividend paid was RM0.80 per share and its required rate of return is 16%. Find the value of the companys stock today. (ANSWER: RM50.41) JasaSetiaBerhad paid dividends of RM1 per share last year. The dividends of the company are expected to grow at an annual rate of 10%. Investors required rate of return is 15% per year. What is the value of common stock today? (ANSWER: RM22)

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