# Questar Financial Analysis

Finance 3050 Homework #2 Autumn 2012

Due Thursday 11/29/12 15 points

I. Visit the website http://finance.yahoo.com and gather the following information for

Questar (ticker symbol: STR):

1. The closing price for Questarâ€™s common stock on Tuesday 11/20/12

2. Questarâ€™s annual dividend, projected for next year

3. The current analystsâ€™ average estimate for Questarâ€™s EPS for this year (Dec. â€˜12)

4. The current analystsâ€™ average estimate for next yearâ€™s EPS (Dec. â€˜13)

5. The current analystsâ€™ average estimate of Questarâ€™s 5-yr EPS growth

II. Calculate:

a. Based on the following given information, what rate of return should Questarâ€™s

shareholders require on their investment?

E(rm) = 8.5% Rf = 1.0% Questarâ€™s beta = .44

b. If Questar retains 44% of its earnings, and can earn a return of 3% on reinvested funds, at

what rate can dividends grow indefinitely?

c. Based on your answer to (a) and information obtained in part I, if Questarâ€™s dividend

(Part I, item 2) is expected to grow indefinitely at the rate found in part (b), what is a

share of Questar stock worth today? (Assume that the dividend you found in part I is D0 )

d. By how much is Questar stock overpriced or underpriced when comparing your answer to

part (c) with the current price (part I, item 1)?

e. If Questarâ€™s earnings grow at the estimated growth rate for 5 years (item I, part 5), what

will EPS be at the end of 2017 (begin with the EPS estimate for â€˜12 [part 1, item 3])?

f. Using your answer to (f), and assuming that Questarâ€™s P/E ratio is 16.1 at the end of

2017, what should a share of stock sell for at that time?

g. Assume that dividends will not grow for the next 5 years. If you buy a share of Questar

stock at the current price (part I, item 1), receive the current dividend (part I, item 2) for

each of the next 5 years, then sell the stock for the price found in (g), what will be your

dollar-weighted average annual rate of return (Calculate IRR using P0, D1-D5 and P5)?

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