1) Everything else equal, which variable is negatively related to the intrinsic value of a company's stock?

a. All are positively related to the intrinsic value

b. k or r (discount rate)

c. D₁

d. D₀

e.g (CF growth rate)

2) Lilo and Stitch, Co. paid a dividend of $1 on $4 of earnings last year. Earnings and dividends are expected to grow at 30% over the next 2 years. After 2 years, the growth rate is expected to slow to 5%. Using an appropriate discount rate of 10% and a 2-stage DDM, what is the intrinsic value of its stock?

a.

$114.32

b.

$31.84

c.

$35.40

d.

$29.26

e.

$38.39

3) Grott and Perrin, Inc. is a mature firm that paid a $3 (D0) dividend on earnings of $5 (E0) per share last year. The firm's ROE is 20%, and it will continue to maintain plowback ratio (b) of 40%. If the firm's equity capitalization rate is 15%, what is the present value of its growth opportunities (PVGO), assuming it constantly grows its dividends at its sustainable rate

a.

$46.29

b.

$10.29

c.

$36

d.

$20

e.

$16