Reference no: EM13796754
1. True or False. Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.
2. You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think
a. the stock should be sold.
b. the stock is a good buy.
c. management is probably not trying to maximize the price per share.
d. dividends are not likely to be declared.
e. the stock is experiencing supernormal growth.
3. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?
a. $23.11
b. $23.70
c. $24.31
d. $24.93
e. $25.57
4. Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?
Expected dividend, D1 $3.00
Current Price, P0 $50
Expected constant growth rate 6.0%
a. The stock's expected dividend yield and growth rate are equal.
b. The stock's expected dividend yield is 5%.
c. The stock's expected capital gains yield is 5%.
d. The stock's expected price 10 years from now is $100.00.
e. The stock's required return is 10%.
5. Barnette Inc.'s free cash flows are expected to be unstable during the next few years while the company undergoes restructuring. However, FCF is expected to be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF growth rate is expected to be constant at 6% beyond that point. If the weighted average cost of capital is 12%, what is the horizon value (in millions) at t = 5?
a. $719
b. $757
c. $797
d. $839
e. $883
6. Young Inc.'s free cash flow during the just-ended year (t = 0) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions?
a. $948
b. $998
c. $1,050
d. $1,103
e. $1,158
7. Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?
a. $104.27
b. $106.95
c. $109.69
d. $112.50
e. $115.38
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