Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): \[\begin{array} { l r } \text { Tetal a55ets } & \$ 7460 \\ \text { Interest-bearing debt } & \$ 3652 \\ \text { Average pre-tax borrowing cost } & 10.5 \% \\ \text { Common equity: } & \\ \quad \text { Boak value } & \$ 2950 \\ \text { Market value } & \$ 13685 \\ \text { Incame tax rate } & 35 \% \\ \text { Market equity beta } & 1.13 \end{array}\] -Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:

A) 79.00% B) 78.3% C) 41.8% D) 50% A) 79.00% B) 78.3% C) 41.8% D) 50%

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): \[\begin{array} { l r } \text { Tetal a55ets } & \$ 7460 \\ \text { Interest-bearing debt } & \$ 3652 \\ \text { Average pre-tax borrowing cost } & 10.5 \% \\ \text { Common equity: } & \\ \quad \text { Boak value } & \$ 2950 \\ \text { Market value } & \$ 13685 \\ \text { Incame tax rate } & 35 \% \\ \text { Market equity beta } & 1.13 \end{array}\] -Determine the weight on debt capital that should be used to calculate Zonk's weighted-average cost of capital:

A) 21.7% B) 21.00% C) 50% D) 58.2% A) 21.7% B) 21.00% C) 50% D) 58.2%

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): \[\begin{array} { l r } \text { Tetal a55ets } & \$ 7460 \\ \text { Interest-bearing debt } & \$ 3652 \\ \text { Average pre-tax borrowing cost } & 10.5 \% \\ \text { Common equity: } & \\ \quad \text { Boak value } & \$ 2950 \\ \text { Market value } & \$ 13685 \\ \text { Incame tax rate } & 35 \% \\ \text { Market equity beta } & 1.13 \end{array}\] -Assume that Zonk is a potential leveraged buyout candidate.Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pre tax borrowing cost of 14 percent and 30 percent common equity.Compute the weighted average cost of capital for Zonk based on the new capital structure.

A) 8.85% B) 12.56% C) 13.01% D) 9.94% A) 8.85% B) 12.56% C) 13.01% D) 9.94%

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): \[\begin{array} { l r } \text { Tetal a55ets } & \$ 7460 \\ \text { Interest-bearing debt } & \$ 3652 \\ \text { Average pre-tax borrowing cost } & 10.5 \% \\ \text { Common equity: } & \\ \quad \text { Boak value } & \$ 2950 \\ \text { Market value } & \$ 13685 \\ \text { Incame tax rate } & 35 \% \\ \text { Market equity beta } & 1.13 \end{array}\] -Using the above information,calculate Zonk's weighted-average cost of capital:

A) 11.5% B) 7.97% C) 7.48% D) 10.90% A) 11.5% B) 7.97% C) 7.48% D) 10.90%

Exam 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

When deriving the equity value of a firm,an analyst forecasts the real dividends expected to be paid in the future.In this case,which discount rate should be used?

(Multiple Choice)

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Question 21

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses value per share.

(Essay)

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Question 22

Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.

(Short Answer)

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Question 23

For each of the following scenarios determine the value as of the beginning of 2012 of the continuing dividend:

(Essay)

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Question 24

The following financial statement data pertains to Southwater,Inc.,a manufacturer of women's suits (dollar amounts in millions): Tatal As5ets \ 154,287 Interest-Bearing Debt \ 33,984 Average Pre-tar barrowing cast 7.75\% Cammon Equity: Bodk Value \ 21,365 Market Value \ 66,735 Incame Tax Rate 39.6\% Market Equity Beta 0.77 Market Premium 7,45\% Risk-Ere intereftrate 2,5\% Required: a.Calculate the company's cost of equity capital. b.Calculate the weight on debt capital that should be used to determine Northridge's weighted-average cost of capital. c.Calculate the weight on equity capital that should be used to determine Northridge's weighted-average cost of capital. d.Calculate Northridge's weighted-average cost of capital.

(Essay)

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Question 25

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): Tetal a55ets \ 7460 Interest-bearing debt \ 3652 Average pre-tax borrowing cost 10.5\% Common equity: Boak value \ 2950 Market value \ 13685 Incame tax rate 35\% Market equity beta 1.13 -Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:

(Multiple Choice)

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Question 26

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): Tetal a55ets \ 7460 Interest-bearing debt \ 3652 Average pre-tax borrowing cost 10.5\% Common equity: Boak value \ 2950 Market value \ 13685 Incame tax rate 35\% Market equity beta 1.13 -Determine the weight on debt capital that should be used to calculate Zonk's weighted-average cost of capital:

(Multiple Choice)

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Question 27

Equity-based valuation models are based on all metrics except

(Multiple Choice)

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Question 28

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): Tetal a55ets \ 7460 Interest-bearing debt \ 3652 Average pre-tax borrowing cost 10.5\% Common equity: Boak value \ 2950 Market value \ 13685 Incame tax rate 35\% Market equity beta 1.13 -Assume that Zonk is a potential leveraged buyout candidate.Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pre tax borrowing cost of 14 percent and 30 percent common equity.Compute the weighted average cost of capital for Zonk based on the new capital structure.

(Multiple Choice)

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Question 29

Under the cash-flow-based valuation approach,free cash flows can be used instead of dividends as the expected future payoffs to the investor in the numerator of the general valuation model because:

(Multiple Choice)

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Question 30

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): Tetal a55ets \ 7460 Interest-bearing debt \ 3652 Average pre-tax borrowing cost 10.5\% Common equity: Boak value \ 2950 Market value \ 13685 Incame tax rate 35\% Market equity beta 1.13 -Using the above information,calculate Zonk's weighted-average cost of capital:

(Multiple Choice)

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Question 31

For each of the following companies,determine the total dividends paid to common equity holders in order to value the firm:

(Essay)

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Question 32

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements.What are the three elements that the analyst needs to measure?

(Essay)

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Question 33

Why is the dividends valuation approach applicable to firms that do not pay periodic (quarterly or annual)dividends?

(Essay)

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Question 34

To determine the appropriate weights to use in the weighted average cost of capital,an analyst will need to determine the ______________________________ of the debt,preferred stock and common equity capital.

(Short Answer)

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Question 35

All of the following are steps in the analysis and valuation framework used to understand the fundamentals of a business and determine estimates of its value except:

(Multiple Choice)

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Question 36

Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?

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Question 37

Investors typically accept a lower risk-adjusted rate of return on debt capital than on equity capital because

(Multiple Choice)

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Question 38

Returns on systematic risk-free securities (like U.S.Treasury securities)should exhibit what type of correlation with returns on a diversified marketwide portfolio of stocks?

(Multiple Choice)

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Question 39

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.

(Short Answer)

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Question 40

When deriving the equity value of a firm,an analyst forecasts the real dividends expected to be paid in the future.In this case,which discount rate should be used?

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses value per share.

Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.

For each of the following scenarios determine the value as of the beginning of 2012 of the continuing dividend:

Equity-based valuation models are based on all metrics except

Under the cash-flow-based valuation approach,free cash flows can be used instead of dividends as the expected future payoffs to the investor in the numerator of the general valuation model because:

For each of the following companies,determine the total dividends paid to common equity holders in order to value the firm:

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements.What are the three elements that the analyst needs to measure?

Why is the dividends valuation approach applicable to firms that do not pay periodic (quarterly or annual)dividends?

To determine the appropriate weights to use in the weighted average cost of capital,an analyst will need to determine the ______________________________ of the debt,preferred stock and common equity capital.

All of the following are steps in the analysis and valuation framework used to understand the fundamentals of a business and determine estimates of its value except:

Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?

Investors typically accept a lower risk-adjusted rate of return on debt capital than on equity capital because

Returns on systematic risk-free securities (like U.S.Treasury securities)should exhibit what type of correlation with returns on a diversified marketwide portfolio of stocks?

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.

Overview of Financial Reporting, financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Forecasting Financial Statements

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

When deriving the equity value of a firm,an analyst forecasts the real dividends expected to be paid in the future.In this case,which discount rate should be used?

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses value per share.

Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.

For each of the following scenarios determine the value as of the beginning of 2012 of the continuing dividend:

Equity-based valuation models are based on all metrics except

Under the cash-flow-based valuation approach,free cash flows can be used instead of dividends as the expected future payoffs to the investor in the numerator of the general valuation model because:

For each of the following companies,determine the total dividends paid to common equity holders in order to value the firm:

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements.What are the three elements that the analyst needs to measure?

Why is the dividends valuation approach applicable to firms that do not pay periodic (quarterly or annual)dividends?

To determine the appropriate weights to use in the weighted average cost of capital,an analyst will need to determine the ______________________________ of the debt,preferred stock and common equity capital.

All of the following are steps in the analysis and valuation framework used to understand the fundamentals of a business and determine estimates of its value except:

Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?

Investors typically accept a lower risk-adjusted rate of return on debt capital than on equity capital because

Returns on systematic risk-free securities (like U.S.Treasury securities)should exhibit what type of correlation with returns on a diversified marketwide portfolio of stocks?

One criticism in using the CAPM to calculate the cost of equity capital is that ______________________________ and the __________________________________________________ are quite sensitive to the time period and methodology used in their computation.

Overview of Financial Reporting, financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Forecasting Financial Statements

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.