You just got done eating a Pizookie at BJ's. It was so amazing that you go home
Question:
You just got done eating a Pizookie at BJ's. It was so amazing that you go home and decide to value their stock to see if it could be a good investment. Assume you find the following pieces of information:
- Latest paid dividend: $3.50 per share
- You expect their dividend to grow by 15% for the first two years and then from year 3 into perpetuity, grow its dividend by 3.4% (terminal growth rate).
- Beta of 0.8
- Expected market return is 5.5% and the risk free rate is 2.3%.
- Current trading price = $201
Flag question: Question 1Question 11 pts
What is the expected return of BJ's stock using the CAPM equation? Hint: [[[CAPM equation: expected return of stock = riskfree rate + Beta * (expected return of market - riskfree rate).]]]
Group of answer choices
5.10%
4.86%
5.03%
2.30%
Flag question: Question 2Question 21 pts
Using a one-stage dividend growth model, what is the intrinsic value of BJ's? (hint: use your answer from question 1 as your expected return (r)).
Group of answer choices
$302.30
$233.42
$212.45
$247.88
Flag question: Question 3Question 31 pts
Using your intrinsic value from the previous question, is BJ's over, or under-valued?
Group of answer choices
under-valued
over-valued
Flag question: Question 4Question 41 pts
If BJ's had a Beta of 1.2, all-else-equal, what would be the new stock price using a one-stage dividend discount model? (Use all of the same information from the case except the Beta is now 1.2).
Group of answer choices
$131.28
$132.08
$122.00
$123.85
Flag question: Question 5Question 51 pts
If BJ's continued to pay the same dividend forever (growth = 0%), what would be the intrinsic value of their stock? (Use all of the same information from the case except the terminal growth rate is now 0%).
Group of answer choices
$72.02
$25.00
$75.43
$112.33
Flag question: Question 6Question 61 pts
Using your intrinsic value from previous question, is BJ's over, or under-valued?
Group of answer choices
under-valued
over-valued
Flag question: Question 7Question 71 pts
If the FED announced an aggressive open market operation where they will buy back Treasury bonds, this will impact BJ's intrinsic value (IV) using the one-stage dividend growth model in the following way:
Group of answer choices
IV goes up since interest rates will likely go up
IV goes down since interest rates will likely go up
IV goes down since interest rates will likely go down
IV goes up since interest rates will likely go down
Flag question: Question 8Question 81 pts
Using all of the original information from the case at the beginning of the quiz, what is the intrinsic value of BJ's using a two-stage dividend growth model? (make sure and build in a spreadsheet).
Group of answer choices
$306.18
$313.44
$223.43
$324.36
Flag question: Question 9Question 91 pts
Using all of the original information from the case at the beginning of the quiz, what is the intrinsic value of BJ's using a two-stage dividend growth model if BJ's provided lower guidance for their year 1 and year 2 dividend growth rate to 10% (from 15%)? (make sure and build in a spreadsheet).
Group of answer choices
$274.34
$313.22
$280.30
$279.10
Flag question: Question 10Question 101 pts
You would like to value BJ's using a relative valuation approach. If BJ's has an average 10 year PE ratio of 25.0 and their current EPS is $7.55, what is the intrinsic value of BJ's?
Group of answer choices
$188.75
$75.44
$200.43
$250.00
Flag question: Question 11Question 111 pts
If the average PE of BJ's peers is 28.0, and BJ's should be expected to trade at this average, what is the intrinsic value of BJ's assuming a current EPS of $7.55?
Group of answer choices
$211.40
$239.82
$214.33
$202.36
Flag question: Question 12Question 121 pts
Assume the average U.S. company has a PE ratio of 24.0 and BJ's PE ratio is 20.0. If BJ's should have a higher price relative to their earnings than the average U.S. company, then BJ's is undervalued.
Group of answer choices
True
False
Flag question: Question 13Question 131 pts
If BJ's has a current EPS of $7.55, what is their current PE ratio?
Group of answer choices
26.6
7.55
21.3
20.0
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill