【正文】 ngterm debt from Table 18F)FCFE =$*Supplemental Note 2 in Table 18H affects both NCC and FCINV.11. Rio National’s equity is relatively undervalued pared to the industry on a P/Etogrowth (PEG) basis. Rio National’s PEG ratio of is below the industry PEG ratio of . The lower PEG ratio is attractive because it implies that the growth rate at Rio National is available at a relatively lower price than is the case for the industry. The PEG ratios for Rio National and the industry are calculated below:Rio NationalCurrent price = $Normalized earnings per share = $Pricetoearnings ratio = $25/$ = Growth rate (as a percentage) = 11PEG ratio = IndustryPricetoearnings ratio = Growth rate (as a percentage) = 12PEG ratio = 1816Copyright 169。 Twostage model allows for separate valuation of two distinct periods in a pany’s future. This can acmodate lifecycle effects. It also can avoid the difficulties posed by initial growth that is higher than the discount rate. = $2012$ 180。 = kind = Government bond yield + ( Industry beta 180。 the higher the expected growth, the higher the P/E ratio. Sundanci would mand a higher P/E if analysts increase the expected growth rate.The P/E ratio is a decreasing function of the market risk premium. An increased market risk premium increases the required rate of return, lowering the price of a stock relative to its earnings. A higher market risk premium would be expected to lower Sundanci39。 (1 + g)]/(k g) = [ 180。s FCFE for the year 2008 is puted as follows:FCFE = Earnings + Depreciation Capital expenditures Increase in NWC = $80 million + $23 million $38 million $41 million = $24 millionFCFE per share = At this payout ratio, Sundanci39。 ()2 180。 = $ 180。 = $D1 = E1 180。 = 10%b.TimeEPSDividendComment0$$1g = 10%, plowback = 2EPS has grown by 10% based on last year’s earnings plowback and ROE。 ROE = 180。 ROE = 15%c. Assuming ROE = k, price is equal to:Therefore, the market is paying $40 per share ($160 – $120) for growth opportunities.12. a. k = D1/P0 + gD1 = 180。 (2/3)$3 180。 (1 – b) = $2 180。 free cash flow models are more likely to be appropriate. At the other extreme, one would be more likely to choose a dividend discount model to value a mature firm paying a relatively stable dividend.2. It is most important to use multistage dividend discount models when valuing panies with temporarily high growth rates. These panies tend to be panies in the early phases of their life cycles, when they have numerous opportunities for reinvestment, resulting in relatively rapid growth and relatively low dividends (or, in many cases, no dividends at all). As these firms mature, attractive investment opportunities are less numerous so that growth rates slow.3. The intrinsic value of a share of stock is the individual investor’s assessment of the true worth of the stock. The market capitalization rate is the market consensus for the required rate of return for the stock. If the intrinsic value of the stock is equal to its price, then the market capitalization rate is equal to the expected rate of return. On the other hand, if the individual investor believes the stock is underpriced (., intrinsic value price), then that investor’s expected rate of return is greater than the market capitalization rate.4. First estimate the amount of each of the next two dividends and the terminal value. The current value is the sum of the present value of these cash flows, discounted at %.5. The required return is 9%. 6. The Gordon DDM uses the dividend for period (t+1) which would be . 7. The PVGO is $: 8. a. b. The price falls in response to the more pessimistic dividend forecast. The forecast for current year earnings, however, is unchanged. Therefore, the P/E ratio falls. The lower P/E ratio is evidence of the diminished optimism concerning the firm39。 in this scenario, we would be valuing expected dividends in the relatively more distant future. However, as a practical matter, such estimates of payments to be made in the more distant future are notoriously inaccurate, rendering dividend discount models problematic for valuation of such panies。 = 8%D1 = $2 180。 (1 + g) 180。 ROE with g = 5% and b = 1/3 222。 = Therefore: k = ($1/$10) + = , or 20%b. Since k = ROE, the NPV of future investment opportunities is zero:c. Since k = ROE, the stock price would be unaffected by cutting the dividend and investing the additional earnings.13. a. k = rf + β [E(rM ) – rf ] = 8% + (15% – 8%) = %g = b 180。 b = 20% 180。 plowback) will fall as plowback ratio falls.(ii) The increased dividend payout rate will reduce the g