QUESTION: 25 Exam Topic: Sec Five (25 to 30)

The value of one share of FDS using the H-model is closest to:

$14.50.
$16.50.
$19.33.

Answer(s): A

Explanation:

Exhibit 1:
Summary Income Statement, Ferguson Department Stores, Inc. (U.S. $ millions, except per share data and shares outstanding) Net earnings for the year
Earnings per share: Basic
Fully diluted
Weighted average shares outstanding
In 2008, FDS also reported an unusual expense of $189.1 million related to restructuring costs and asset write downs.
Exhibit 2: Selected Industry Information for 2008

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QUESTION: 26 Exam Topic: Sec Five (25 to 30)

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Given Emery's dividend forecast for FDS, is the H-model the appropriate valuation model to use to value FDS?

Yes.
No, the H-model is appropriate when the dividend growth rate declines at a linear rate for a short period of time during stage one, followed by a 1-year suspension in dividends before the previous dividend is reinstated, and then dividends grow at a long-term constant rate.
No, the H-model is appropriate when the dividend growth rate grows during the first stage followed by a period of stable growth in dividends in stage two, followed by a dividend growth rate that declines linearly in perpetuity.

Answer(s): A

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QUESTION: 27 Exam Topic: Sec Five (25 to 30)

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Assuming that the cost of equity for FDS does not change, the present value of growth opportunities in the share price following the announcement that the company would be expanding its retail operations, using Emery's 2009 earnings forecast, is closest to: