Stock valuation – NBC Institute

FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques

Calculating the betas, required rates of return, and stock prices for three securities based on market data and forecasts.

Question

The expected return on the market portfolio (estimated from past data) is 12% p.a. with a standard deviation of 15% and the risk-free rate of 4% p.a. The actual prices, last year dividends, and the covariances from three securities (A, B, C) with the market are given in the table below:

Security	Actual Price (N)	Last Year Dividend (N)	Covariance with Market
A	107	1.30	0.025650
B	618	18.00	0.018675
C	1,350	22.00	0.029025

You are required to:

i.

Calculate the betas and the required rates of return of securities A, B, and C. (3 Marks)

ii.

In the table below, you have the market consensus forecast of 12-month price targets, ex-dividends, and the expected dividend growth rate of the securities.

Security	12-month price target (N)	Dividend growth rate (%)
A	122.50	12
B	740.00	10
C	1,500.00	11

Assuming the dividends are paid in 12 months exactly, compute the required stock price for the 3 stocks and state your conclusion. (4 Marks)

iii.

Considering the results in (ii) above, explain briefly what will be your strategy? (1 Mark)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Beta, CAPM, Dividends, Market Portfolio, Required Return, Stock valuation
Level: Level 3

Topic: Investment Appraisal Techniques

AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

Identifies the appropriate stock valuation method as per SAS 4 standards.

Question

In accordance with SAS 4, which ONE of the following methods is appropriate in valuation of stock?

A. Latest in, first out
B. Base stock
C. Specific identification
D. Latest purchase price
E. Weighted average

Answer

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Tags: Financial Reporting, Inventory Methods, SAS 4, Stock valuation
Level: Level 3

Topic: Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)
Series: NOV 2011

MI – May 2023 – L1 – SA – Q10 – Costing Methods

This question asks about the effect of FIFO on closing stock value and profit when prices are rising.

Question

When prices are rising, FIFO method will provide:
A. Highest value of closing stock but lowest profit
B. Highest value of profit but lowest value of closing stock
C. Highest value of closing stock and profit
D. Lowest value of closing stock and profit
E. Same value of closing stock and profit

Answer

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Tags: FIFO, Profit Calculation, Stock valuation
Level: Level 1

Topic: Costing Methods
Series: MAY 2023

AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows

Evaluate whether Senchi Ltd is a good investment for Kurablah based on the Dividend Growth Model and calculate the maximum price she should pay.

Question

Rosa Kurablah Ltd (Kurablah) plans to invest in ordinary shares for a period of fifteen years, after which she will sell out, buy a lifetime room and board membership in a retirement home, and retire. She feels that Senchi Ltd (Senchi) is currently, but temporarily, undervalued by the market. Kurablah expects Senchi’s current earnings and dividend to double in the next fifteen years. Senchi’s last dividend was GH¢3, and its stock currently sells for GH¢35 a share.

Required:

i) If Kurablah requires a 12 percent return on her investment, will Senchi be a good buy for her?
(3 marks)

ii) What is the maximum that Kurablah could pay for Senchi and still earn her required 12 percent?
(2 marks)

iii) What might be the cause of such a market undervaluation?
(3 marks)

iv) Given Kurablah’s assumptions, what market capitalization rate for Senchi does the current price imply?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividend growth model, Investment Decision, Market capitalization, Required Return, Stock valuation
Level: Level 3

Topic: Valuation and use of free cash flows
Series: MAY 2019

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

Question

Oliso Ghana Ltd paid a dividend of GH¢120 per share two years ago. In the previous and current year, dividend grew by 10% per annum. Starting from next year, dividend is projected to grow by 15% for the next three years and then 10% for another three years and finally settling at 12% forever. The investors expect 20% returns.

Required:
i) Calculate the value of a share in cedis for Oliso Ghana Ltd. (8 marks)
ii) If an investor holds 1,500 shares of the company, what will be the total value in cedis? (2 marks)

Answer

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Tags: Discounted Cash Flow, Dividend valuation, Growth rates, Stock valuation
Level: Level 2

Topic: Discounted cash flow, Dividend Policy
Series: MAR 2023

FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques

Calculating the betas, required rates of return, and stock prices for three securities based on market data and forecasts.

Question

Security	Actual Price (N)	Last Year Dividend (N)	Covariance with Market
A	107	1.30	0.025650
B	618	18.00	0.018675
C	1,350	22.00	0.029025

You are required to:

i.

Calculate the betas and the required rates of return of securities A, B, and C. (3 Marks)

ii.

In the table below, you have the market consensus forecast of 12-month price targets, ex-dividends, and the expected dividend growth rate of the securities.

Security	12-month price target (N)	Dividend growth rate (%)
A	122.50	12
B	740.00	10
C	1,500.00	11

Assuming the dividends are paid in 12 months exactly, compute the required stock price for the 3 stocks and state your conclusion. (4 Marks)

iii.

Considering the results in (ii) above, explain briefly what will be your strategy? (1 Mark)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Beta, CAPM, Dividends, Market Portfolio, Required Return, Stock valuation
Level: Level 3

Topic: Investment Appraisal Techniques

AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

Identifies the appropriate stock valuation method as per SAS 4 standards.

Question

In accordance with SAS 4, which ONE of the following methods is appropriate in valuation of stock?

A. Latest in, first out
B. Base stock
C. Specific identification
D. Latest purchase price
E. Weighted average

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Reporting, Inventory Methods, SAS 4, Stock valuation
Level: Level 3

Topic: Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)
Series: NOV 2011

MI – May 2023 – L1 – SA – Q10 – Costing Methods

This question asks about the effect of FIFO on closing stock value and profit when prices are rising.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: FIFO, Profit Calculation, Stock valuation
Level: Level 1

Topic: Costing Methods
Series: MAY 2023

AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows

Evaluate whether Senchi Ltd is a good investment for Kurablah based on the Dividend Growth Model and calculate the maximum price she should pay.

Question

Required:

i) If Kurablah requires a 12 percent return on her investment, will Senchi be a good buy for her?
(3 marks)

ii) What is the maximum that Kurablah could pay for Senchi and still earn her required 12 percent?
(2 marks)

iii) What might be the cause of such a market undervaluation?
(3 marks)

iv) Given Kurablah’s assumptions, what market capitalization rate for Senchi does the current price imply?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividend growth model, Investment Decision, Market capitalization, Required Return, Stock valuation
Level: Level 3

Topic: Valuation and use of free cash flows
Series: MAY 2019

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

Question

Required:
i) Calculate the value of a share in cedis for Oliso Ghana Ltd. (8 marks)
ii) If an investor holds 1,500 shares of the company, what will be the total value in cedis? (2 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discounted Cash Flow, Dividend valuation, Growth rates, Stock valuation
Level: Level 2

Topic: Discounted cash flow, Dividend Policy
Series: MAR 2023

Question Tag: Stock valuation

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FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques

Calculating the betas, required rates of return, and stock prices for three securities based on market data and forecasts.

i.

ii.

iii.

AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

Identifies the appropriate stock valuation method as per SAS 4 standards.

MI – May 2023 – L1 – SA – Q10 – Costing Methods

This question asks about the effect of FIFO on closing stock value and profit when prices are rising.

AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows

Evaluate whether Senchi Ltd is a good investment for Kurablah based on the Dividend Growth Model and calculate the maximum price she should pay.

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques

Calculating the betas, required rates of return, and stock prices for three securities based on market data and forecasts.

i.

ii.

iii.

AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

Identifies the appropriate stock valuation method as per SAS 4 standards.

MI – May 2023 – L1 – SA – Q10 – Costing Methods

This question asks about the effect of FIFO on closing stock value and profit when prices are rising.

AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows

Evaluate whether Senchi Ltd is a good investment for Kurablah based on the Dividend Growth Model and calculate the maximum price she should pay.

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

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FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques

Calculating the betas, required rates of return, and stock prices for three securities based on market data and forecasts.

i.

ii.

iii.

You're reporting an error for "FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques"

AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

Identifies the appropriate stock valuation method as per SAS 4 standards.

You're reporting an error for "AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)"

MI – May 2023 – L1 – SA – Q10 – Costing Methods

This question asks about the effect of FIFO on closing stock value and profit when prices are rising.

You're reporting an error for "MI – May 2023 – L1 – SA – Q10 – Costing Methods"

AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows

Evaluate whether Senchi Ltd is a good investment for Kurablah based on the Dividend Growth Model and calculate the maximum price she should pay.

You're reporting an error for "AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows"

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

You're reporting an error for "FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy"

FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques

Calculating the betas, required rates of return, and stock prices for three securities based on market data and forecasts.

i.

ii.

iii.

You're reporting an error for "FM – May 2016 – L3 – Q6b – Investment Appraisal Techniques"

AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

Identifies the appropriate stock valuation method as per SAS 4 standards.

You're reporting an error for "AAA – Nov 2011 – L3 – SA – Q8 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)"

MI – May 2023 – L1 – SA – Q10 – Costing Methods

This question asks about the effect of FIFO on closing stock value and profit when prices are rising.

You're reporting an error for "MI – May 2023 – L1 – SA – Q10 – Costing Methods"

AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows

Evaluate whether Senchi Ltd is a good investment for Kurablah based on the Dividend Growth Model and calculate the maximum price she should pay.

You're reporting an error for "AFM – May 2019 – L3 – Q5b – Valuation and use of free cash flows"

FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy

Calculate the value of a share for Oliso Ghana Ltd using projected dividend growth rates and the total value for an investor holding 1,500 shares.

You're reporting an error for "FM – March 2023 – L2 – Q1b – Discounted cash flow | Dividend Policy"

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