FINANCIAL 107 – You’ve are trying to estimate the price per share of the stock of Company D.

Subject: Business / Finance
Question

1.) You’ve are trying to estimate the price per share of the stock of Company D. You have the following information on Company D as well as three other publicly traded companies in the same industry:

Shares outstanding Price per share Debt Cash FCF
Company A 100 20 850 100 500
Company B 80 30 1000 400 600
Company C 50 40 500 100 400
Company D 20 150 50 200
a) What is the Enterprise Value of Company A?
$2550

$2600

$2650

$2700

$2750

$2800
b) What is the average Enterprise Value / FCF multiple in the industry (based on Companies A, B, and C)?

4.5

5.0

5.5

6.0

6.5

7.0

c) Based on the average Enterprise Value / FCF multiple among Companies A, B , and C, what should be the Enterprise Value of Company D?

$900

$950

$1000

$1050

$1100

$1150

d) Based on your answer to part c), what should be the price per share of Company D’s stock?

$40

$35

$40

$45

$50

$55

2.) You bought a share of stock one year ago for $50 and sold it today for $60, just after it paid a $1 dividend. What was your total realized return?

2%

10%

12%

20%

21%

22%

3.) The last four years of returns for a stock are as follows:

1

2

3

4

-2%

+15%

+10%

-3%

What is the average annual return?

5%

6%

7%

8%

9%

10%

4.) The last four years of returns for a stock are as follows

1

2

3

4

-2%

+15%

+10%

-3%

What is the standard deviation of returns?

5%

7.93%

8.91%

9.55%

10.21%

79.33%

5.)You have the following statistics on the distribution of returns for three different stocks (A, B, and C):

Stock A

Stock B

Stock C

Expected return

5%

5%

5%

Standard deviation

10%

8%

10%

Correlation (A,B)

0.5

Correlation (A,C)

1

Correlation (B,C)

-0.2

a.) Which of the following portfolios do you expect to have the highest expected return?

Equally weighted portfolio of Stocks A and B

Equally weighted portfolio of Stocks A and C

Equally weighted portfolio of Stocks B and C

All of these portfolios will have the same expected return

b.) which of the following portfolios do you expect to have the lowest standard deviation of returns?

Equally weighted portfolio of Stocks A and B

Equally weighted portfolio of Stocks A and C

Equally weighted portfolio of Stocks B and C

All of these portfolios will have the same standard deviation

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