Question 1

Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $100,000,and FCF is expected to grow at a constant rate of 6.5%.Assume the firm has zero non-operating assets.If the company's weighted average cost of capital is 11.5%,then what is the firm's total corporate value?

Accepted Answer

A)   $1,560,000
B)   $1,900,000
C)   $2,000,000
D)   $1,980,000
E)   $1,920,000F) D) and E)
G) A) and E)

Question 2

Francis Inc.'s stock has a required rate of return of 10.25%,and it sells for $87.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D1?

Accepted Answer

A)   $3.72
B)   $2.79
C)   $4.65
D)   $3.16
E)   $3.90F) A) and D)
G) A) and B)

Question 3

You must estimate the intrinsic value of Noe Technologies' stock.The end-of-year free cash flow (FCF1) is expected to be $24.50 million,and it is expected to grow at a constant rate of 7.0% a year thereafter.The company's WACC is 10.0%,it has $125.0 million of long-term debt plus preferred stock outstanding,and there are 15.0 million shares of common stock outstanding.Assume the firm has zero non-operating assets.What is the firm's estimated intrinsic value per share of common stock? Do not round intermediate calculations.

Accepted Answer

A)   $47.96
B)   $46.11
C)   $38.27
D)   $40.12
E)   $34.58F) A) and E)
G) A) and B)

Question 4

When a new issue of stock is brought to market,the marginal investor determines the price at which the stock will trade.

Accepted Answer

A) True 
 B)False

Question 5

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is CORRECT?

Accepted Answer

A)   All common stocks fall into one of three classes: A,B,and C.
B)   All common stocks,regardless of class,must have the same voting rights.
C)   All firms have several classes of common stock.
D)   All common stock,regardless of class,must pay the same dividend.
E)   Some class or classes of common stock are entitled to more votes per share than other classes.F) None of the above
G) B) and C)

Question 6

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D0?

Accepted Answer

A)   $0.95
B)   $1.38
C)   $1.37
D)   $1.22
E)   $1.06F) B) and D)
G) A) and C)

Question 7

Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the firm's total corporate value.

Accepted Answer

A) True 
 B)False

Question 8

Based on the corporate valuation model,Morgan Inc.'s total corporate value is $200 million.The balance sheet shows $90 million of notes payable,$30 million of long-term debt,$40 million of preferred stock,and $100 million of common equity.The company has 10 million shares of stock outstanding.What is the best estimate of the stock's price per share?

Accepted Answer

A)   $3.80
B)   $3.36
C)   $3.88
D)   $4.00
E)   $4.12F) C) and D)
G) A) and B)

Question 9

Ryan Enterprises forecasts the free cash flows (in millions) shown below.Assume the firm has zero non-operating assets.The weighted average cost of capital is 13.0%,and the FCFs are expected to continue growing at a 5.0% rate after Year 3.What is the firm's total corporate value (in millions) ? Do not round intermediate calculations.   Year 123 FCF −$15.0$10.0$25.0\begin{array} { l r r r } 	ext { Year } & 1 & 2 & 3 \\hline 	ext { FCF } & - \$ 15.0 & \$ 10.0 & \$ 25.0\end{array} Year  FCF ​1−$15.0​2$10.0​3$25.0​​ 
?

Accepted Answer

A)   $268.01
B)   $196.22
C)   $217.75
D)   $272.79
E)   $239.29 F) C) and D)
G) A) and B)

Question 10

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
B)   The corporate valuation model discounts free cash flows by the required return on equity.
C)   The corporate valuation model can be used to find the value of a division.
D)   An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
E)   Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon,or continuing,value.F) C) and E)
G) A) and E)

Question 11

Savickas Petroleum's stock has a required return of 12.00%,and the stock sells for $36.00 per share.The firm just paid a dividend of $1.00,and the dividend is expected to grow by 30.00% per year for the next 4 years,so D4 = $1.00(1.30) 4 = $2.8561.After t = 4,the dividend is expected to grow at a constant rate of X% per year forever.What is the stock's expected constant growth rate after t = 4,i.e. ,what is X? Do not round your intermediate calculations.

Accepted Answer

A)   5.63%
B)   4.39%
C)   6.20%
D)   4.96%
E)   5.69%F) A) and B)
G) None of the above

Question 12

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Accepted Answer

A)   6.01%
B)   5.54%
C)   6.07%
D)   6.91%
E)   5.95%F) B) and E)
G) A) and B)

Question 13

The Isberg Company just paid a dividend of $0.75 per share,and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.90,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price,P0? Do not round intermediate calculations.

Accepted Answer

A)   $10.19
B)   $9.89
C)   $9.10
D)   $7.52
E)   $10.98F) B) and D)
G) A) and E)

Question 14

Kedia Inc.forecasts a negative free cash flow for the coming year,FCF1 = -$10 million,but it expects positive numbers thereafter,with FCF2 = $34 million.After Year 2,FCF is expected to grow at a constant rate of 4% forever.Assume the firm has zero non-operating assets.If the weighted average cost of capital is 14.0%,what is the firm's total corporate value,in millions? Do not round intermediate calculations.

Accepted Answer

A)   $335.10
B)   $275.00
C)   $319.14
D)   $289.47
E)   $303.95F) All of the above
G) B) and C)

Question 15

If D1 = $1.50,g (which is constant) = 2.1%,and P0 = $56,then what is the stock's expected capital gains yield for the coming year?

Accepted Answer

A)   2.50%
B)   2.39%
C)   2.08%
D)   2.10%
E)   1.66%F) A) and B)
G) None of the above

Question 16

The expected return on Natter Corporation's stock is 14%.The stock's dividend is expected to grow at a constant rate of 8%,and it currently sells for $50 a share.Which of the following statements is CORRECT?

Accepted Answer

A)   The stock's dividend yield is 7%.
B)   The stock's dividend yield is 8%.
C)   The current dividend per share is $4.00.
D)   The stock price is expected to be $54 a share one year from now.
E)   The stock price is expected to be $57 a share one year from now.F) A) and E)
G) B) and E)

Question 17

If D1 = $1.25,g (which is constant) = 5.5%,and P0 = $40,then what is the stock's expected total return for the coming year?

Accepted Answer

A)   8.80%
B)   10.09%
C)   6.47%
D)   10.35%
E)   8.63%F) C) and E)
G) A) and E)

Question 18

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT?   A  B  Price $25$25 Expected growth (constant)  10%5% Required return 15%15%\begin{array} { l r r } & 	ext { A } & 	ext { B } \	ext { Price } & \$ 25 & \$ 25 \	ext { Expected growth (constant)  } & 10 \% & 5 \% \	ext { Required return } & 15 \% & 15 \%\end{array} Price  Expected growth (constant)   Required return ​ A $2510%15%​ B $255%15%​ 
?

Accepted Answer

A)   Stock A's expected dividend at t = 1 is only half that of Stock B.
B)   Stock A has a higher dividend yield than Stock B.
C)   Currently the two stocks have the same price,but over time Stock B's price will pass that of A.
D)   Since Stock A's growth rate is twice that of Stock B,Stock A's future dividends will always be twice as high as Stock B's.
E)   The two stocks should not sell at the same price.If their prices are equal,then a disequilibrium must exist. F) A) and B)
G) A) and C)

Question 19

If a given investor believes that a stock's expected return exceeds its required return,then the investor most likely believes that

Accepted Answer

A)   the stock is experiencing supernormal growth.
B)   the stock should be sold.
C)   the stock is a good buy.
D)   management is probably not trying to maximize the price per share.
E)   dividends are not likely to be declared.F) A) and C)
G) A) and B)

Question 20

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT?  AB Price $25$40 Expected growth 7%9% Expected return 10%12%\begin{array} { l r r } & \mathrm { A } & \mathrm { B } \	ext { Price } & \$ 25 & \$ 40 \	ext { Expected growth } & 7 \% & 9 \% \	ext { Expected return } & 10 \% & 12 \%\end{array} Price  Expected growth  Expected return ​A$257%10%​B$409%12%​ 
?

Accepted Answer

A)   The two stocks should have the same expected dividend.
B)   The two stocks could not be in equilibrium with the numbers given in the question.
C)   A's expected dividend is $0.50.
D)   B's expected dividend is $0.75.
E)   A's expected dividend is $0.75 and B's expected dividend is $1.20. F) B) and D)
G) A) and E)

Exam 9: Stocks and Their Valuation

If a given investor believes that a stock's expected return exceeds its required return,then the investor most likely believes that

Correct Answer
verified

The expected return on Natter Corporation's stock is 14%.The stock's dividend is expected to grow at a constant rate of 8%,and it currently sells for $50 a share.Which of the following statements is CORRECT?

Correct Answer
verified

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D₀?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If D₁ = $1.50,g (which is constant) = 2.1%,and P₀ = $56,then what is the stock's expected capital gains yield for the coming year?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Francis Inc.'s stock has a required rate of return of 10.25%,and it sells for $87.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D₁?

Correct Answer
verified

Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the firm's total corporate value.

Correct Answer
verified

Which of the following statements is NOT CORRECT?

Correct Answer
verified

When a new issue of stock is brought to market,the marginal investor determines the price at which the stock will trade.

Correct Answer
verified

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D₁ = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Correct Answer
verified

If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $40,then what is the stock's expected total return for the coming year?

Correct Answer
verified

Correct Answer
verified

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is CORRECT?

Correct Answer
verified

Correct Answer
verified

Suppose Boyson Corporation's projected free cash flow for next year is FCF₁ = $100,000,and FCF is expected to grow at a constant rate of 6.5%.Assume the firm has zero non-operating assets.If the company's weighted average cost of capital is 11.5%,then what is the firm's total corporate value?

Correct Answer
verified

Correct Answer
verified

Exam 9: Stocks and Their Valuation

If a given investor believes that a stock's expected return exceeds its required return,then the investor most likely believes that

Correct AnswerverifiedShow Answer

The expected return on Natter Corporation's stock is 14%.The stock's dividend is expected to grow at a constant rate of 8%,and it currently sells for $50 a share.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D0?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If D1 = $1.50,g (which is constant) = 2.1%,and P0 = $56,then what is the stock's expected capital gains yield for the coming year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Francis Inc.'s stock has a required rate of return of 10.25%,and it sells for $87.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D1?

Correct AnswerverifiedShow Answer

Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the firm's total corporate value.

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedShow Answer

When a new issue of stock is brought to market,the marginal investor determines the price at which the stock will trade.

Correct AnswerverifiedShow Answer

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Correct AnswerverifiedShow Answer

If D1 = $1.25,g (which is constant) = 5.5%,and P0 = $40,then what is the stock's expected total return for the coming year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $100,000,and FCF is expected to grow at a constant rate of 6.5%.Assume the firm has zero non-operating assets.If the company's weighted average cost of capital is 11.5%,then what is the firm's total corporate value?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D₀?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If D₁ = $1.50,g (which is constant) = 2.1%,and P₀ = $56,then what is the stock's expected capital gains yield for the coming year?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Francis Inc.'s stock has a required rate of return of 10.25%,and it sells for $87.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D₁?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D₁ = $1.25) .The stock sells for $27.50 per share,and its required rate of return is 10.5%.The dividend is expected to grow at some constant rate,g,forever.What is the equilibrium expected growth rate?

Correct Answer
verified

If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $40,then what is the stock's expected total return for the coming year?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose Boyson Corporation's projected free cash flow for next year is FCF₁ = $100,000,and FCF is expected to grow at a constant rate of 6.5%.Assume the firm has zero non-operating assets.If the company's weighted average cost of capital is 11.5%,then what is the firm's total corporate value?

Correct Answer
verified

Correct Answer
verified