Deck 10: Stocks and Their Valuation

Question 1

Preferred stock is a hybrid-a cross between a common stock and a bond-in the sense that it pays dividends that normally increase annually (like a stock),but its payments are contractually guaranteed (like interest on a bond).

Answer 1

False

Question 2

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Answer 2

True

Question 3

The corporate valuation model can be used only when a company doesn't pay dividends.

Answer 3

False

Question 4

According to the nonconstant growth model discussed in the textbook,the discount rate used to find the present value of the expected cash flows during the initial growth period is the same as the discount rate used to find the PVs of cash flows during the subsequent constant growth period.

Question 5

According to the basic DCF stock valuation model,the value an investor should assign to a share of stock is dependent on the length of time he or she plans to hold the stock.

Question 6

If a stock's expected return as seen by the marginal investor exceeds his or her required return,then the investor will buy the stock until its price has risen enough to bring the expected return down to equal the required return.

Question 7

The corporate valuation model cannot be used unless a company pays dividends.

Question 8

For a stock to be in equilibrium,two conditions are necessary: (1)The stock's market price must equal its intrinsic value as seen by the marginal investor,and (2)the expected return as seen by the marginal investor must equal his or her required return.

Question 9

Two conditions are used to determine whether a stock is in equilibrium: (1)Does the stock's market price equal its intrinsic value as seen by the marginal investor,and (2)does the expected return on the stock as seen by the marginal investor equal his or her required return? If either of these conditions,but not necessarily both,holds,then the stock is said to be in equilibrium.

Question 10

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

Question 11

If a firm's stockholders are given the preemptive right,then they can call for a meeting to vote to replace the management.Without the preemptive right,dissident stockholders must seek a change in management through a proxy fight.

Question 12

The preemptive right gives current stockholders the right to purchase,on a pro rata basis,any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Question 13

The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Question 14

If a stock's market price exceeds its intrinsic value as seen by the marginal investor,then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Question 15

The constant growth DCF model used to evaluate the prices of common stocks is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities.

Question 16

The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.

Question 17

From an investor's perspective,a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds.However,from a corporate issuer's standpoint,these risk relationships are reversed: bonds are the most risky for the firm,preferred is next,and common is least risky.

Question 18

Founders' shares,a type of classified stock owned by the firm's founders,generally have more votes per share than the other classes of common stock.

Question 19

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

Question 20

Classified stock differentiates various classes of common stock.Using it is one way companies can meet special needs,such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Question 21

Which of the following statements is CORRECT,assuming stocks are in equilibrium?

A) The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.
B) Assume that the required return on a given stock is 13%.If the stock's dividend is growing at a constant rate of 5%,then its expected dividend yield is 5% as well.
C) A stock's dividend yield can never exceed its expected growth rate.
D) A required condition for one to use the constant growth model is that the stock's expected growth rate exceed its required rate of return.
E) Other things held constant,the higher a company's beta coefficient,the lower its required rate of return.

Question 22

If markets are in equilibrium,which of the following conditions will exist?

A) Each stock's expected return should equal its realized return as seen by the marginal investor.
B) Each stock's expected return should equal its required return as seen by the marginal investor.
C) All stocks should have the same expected return as seen by the marginal investor.
D) The expected and required returns on stocks and bonds should be equal.
E) All stocks should have the same realized return during the coming year.

Question 23

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

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.

Question 24

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) These two stocks should have the same price.
B) These two stocks must have the same dividend yield.
C) These two stocks should have the same expected return.
D) These two stocks must have the same expected capital gains yield.
E) These two stocks must have the same expected year-end dividend.

Question 25

An increase in a firm's expected growth rate would cause its required rate of return to

A) increase.
B) decrease.
C) fluctuate less than before.
D) fluctuate more than before.
E) possibly increase,possibly decrease,or possibly remain constant.

Question 26

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? ​

A) The stock's required return is 10%.
B) The stock's expected dividend yield and growth rate are equal.
C) The stock's expected dividend yield is 5%.
D) The stock's expected capital gains yield is 5%.
E) The stock's expected price 10 years from now is $100.00.

Question 27

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

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.

Question 28

Two constant growth stocks are in equilibrium,have the same price,and have the same required rate of return.Which of the following statements is CORRECT?

A) The two stocks must have the same dividend per share.
B) If one stock has a higher dividend yield,then it must also have a lower dividend growth rate.
C) If one stock has a higher dividend yield,then it must also have a higher dividend growth rate.
D) The two stocks must have the same dividend growth rate.
E) The two stocks must have the same dividend yield.

Question 29

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) 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.

Question 30

Stocks A and B have the following data.The market risk premium is 6.0% and the risk-free rate is 6.4%.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? ​

A) Stock A must have a higher stock price than Stock B.
B) Stock A must have a higher dividend yield than Stock B.
C) Stock B's dividend yield equals its expected dividend growth rate.
D) Stock B must have the higher required return.
E) Stock B could have the higher expected return.

Question 31

Which of the following statements is CORRECT?

A) The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.
B) If a stock has a required rate of return r_s = 12% and its dividend is expected to grow at a constant rate of 5%,then the stock's dividend yield is also 5%.
C) The stock valuation model,P₀ = D₁/(r_s - g),can be used to value firms whose dividends are expected to decline at a constant rate,i.e. ,to grow at a negative rate.
D) The price of a stock is the present value of all expected future dividends,discounted at the dividend growth rate.
E) The constant growth model cannot be used for a zero growth stock,wherein the dividend is expected to remain constant over time.

Question 32

Stocks A and B have the same price and are in equilibrium,but Stock A has the higher required rate of return.Which of the following statements is CORRECT?

A) If Stock A has a lower dividend yield than Stock B,then its expected capital gains yield must be higher than Stock B's.
B) Stock B must have a higher dividend yield than Stock A.
C) Stock A must have a higher dividend yield than Stock B.
D) If Stock A has a higher dividend yield than Stock B,then its expected capital gains yield must be lower than Stock B's.
E) Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B.

Question 33

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? ​

A) Stock Y pays a higher dividend per share than Stock X.
B) Stock X pays a higher dividend per share than Stock Y.
C) One year from now,Stock X should have the higher price.
D) Stock Y has a lower expected growth rate than Stock X.
E) Stock Y has the higher expected capital gains yield.

Question 34

If a stock's dividend is expected to grow at a constant rate of 5% a year,then which of the following statements is CORRECT? The stock is in equilibrium.

A) The expected return on the stock is 5% a year.
B) The stock's dividend yield is 5%.
C) The price of the stock is expected to decline in the future.
D) The stock's required return must be equal to or less than 5%.
E) The stock's price one year from now is expected to be 5% above the current price.

Question 35

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT? ​

A) Stock X has a higher dividend yield than Stock Y.
B) Stock Y has a higher dividend yield than Stock X.
C) One year from now,Stock X's price is expected to be higher than Stock Y's price.
D) Stock X has the higher expected year-end dividend.
E) Stock Y has a higher capital gains yield.

Question 36

The preemptive right is important to shareholders because it

A) allows managers to buy additional shares below the current market price.
B) will result in higher dividends per share.
C) is included in every corporate charter.
D) protects the current shareholders against a dilution of their ownership interests.
E) protects bondholders and thus enables the firm to issue debt with a relatively low interest rate.

Question 37

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?

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.

Question 38

Which of the following statements is CORRECT?

A) The constant growth model takes into consideration the capital gains investors expect to earn on a stock.
B) Two firms with the same expected dividend and growth rate must also have the same stock price.
C) It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.
D) If a stock has a required rate of return r_s = 12%,and if its dividend is expected to grow at a constant rate of 5%,then the stock's dividend yield is also 5%.
E) The price of a stock is the present value of all expected future dividends,discounted at the dividend growth rate.

Question 39

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) 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.

Question 40

A stock is expected to pay a year-end dividend of $2.00,i.e. ,D₁ = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = -5%).If the company is in equilibrium and its expected and required rate of return is 15%,then which of the following statements is CORRECT?

A) The company's current stock price is $20.
B) The company's dividend yield 5 years from now is expected to be 10%.
C) The constant growth model cannot be used because the growth rate is negative.
D) The company's expected capital gains yield is 5%.
E) The company's expected stock price at the beginning of next year is $9.50.

Question 41

If D₁ = $1.25,g (which is constant)= 5.5%,and P₀ = $36,then what is the stock's expected total return for the coming year?

A) 7.99%
B) 7.00%
C) 7.54%
D) 8.88%
E) 8.97%

Question 42

Which of the following statements is CORRECT?

A) Preferred stockholders have a priority over bondholders to the income in the event of a bankruptcy,but not to the proceeds in the event of a liquidation.
B) The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
C) Corporations cannot buy the preferred stocks of other corporations.
D) Preferred dividends are not generally cumulative.
E) A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

Question 43

Which of the following statements is CORRECT?

A) If a company has two classes of common stock,Class A and Class B,then the stocks may pay different dividends,but under all state charters the two classes must have the same voting rights.
B) The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
C) The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis)new issues of the firm's common stock.
D) The stock valuation model,P₀ = D₁/(r_s - g),cannot be used for firms that have negative growth rates.
E) The stock valuation model,P₀ = D₁/(r_s - g),can be used only for firms whose growth rates exceed their required returns.

Question 44

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 $22.50 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?

A) 5.88%
B) 4.25%
C) 4.30%
D) 4.90%
E) 4.94%

Question 45

The required returns of Stocks X and Y are r_X = 10% and r_Y = 12%.Which of the following statements is CORRECT?

A) If the market is in equilibrium,and if Stock Y has the lower expected dividend yield,then it must have the higher expected growth rate.
B) If Stock Y and Stock X have the same dividend yield,then Stock Y must have a lower expected capital gains yield than Stock X.
C) If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate,then Stock Y must sell for a higher price.
D) The stocks must sell for the same price.
E) Stock Y must have a higher dividend yield than Stock X.

Question 46

Which of the following statements is CORRECT?

A) A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.
B) Preferred stock is normally expected to provide steadier,more reliable income to investors than the same firm's common stock.As a result,the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
C) The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis)new issues of preferred stock.
D) One of the disadvantages to a corporation of owning preferred stock is that 50% of the dividends received represent taxable income to the corporate recipient,whereas interest income earned on bonds is tax free.
E) One of the advantages to financing with preferred stock is that 50% of the dividends paid out are tax deductible to the issuer.

Question 47

A share of common stock just paid a dividend of $1.00.If the expected long-run growth rate for this stock is 5.4%,and if investors' required rate of return is 10.2%,then what is the stock price?

A) $23.93
B) $21.96
C) $24.37
D) $23.50
E) $16.47

Question 48

If D₁ = $1.50,g (which is constant)= 2.5%,and P₀ = $56,then what is the stock's expected capital gains yield for the coming year?

A) 3.08%
B) 1.95%
C) 2.98%
D) 2.50%
E) 2.83%

Question 49

Reddick Enterprises' stock currently sells for $50.00 per share.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,r_s,is 9.00%.What is the stock's expected price 3 years from today?

A) $71.04
B) $71.63
C) $58.71
D) $68.69
E) $61.65

Question 50

Suppose Boyson Corporation's projected free cash flow for next year is FCF₁ = $250,000,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?

A) $3,850,000
B) $4,000,000
C) $5,000,000
D) $5,050,000
E) $4,200,000

Question 51

A stock is expected to pay a dividend of $0.75 at the end of the year.The required rate of return is r_s = 10.5%,and the expected constant growth rate is g = 8.6%.What is the stock's current price?

A) $36.32
B) $37.11
C) $39.47
D) $43.03
E) $47.76

Question 52

Whited Inc.'s stock currently sells for $35.25 per share.The dividend is projected to increase at a constant rate of 3.50% per year.The required rate of return on the stock,r_s,is 11.50%.What is the stock's expected price 5 years from now?

A) $41.87
B) $52.33
C) $46.89
D) $40.61
E) $36.42

Question 53

Which of the following statements is NOT CORRECT?

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.

Question 54

If D₁ = $1.25,g (which is constant)= 4.7%,and P₀ = $30.00,then what is the stock's expected dividend yield for the coming year?

A) 4.13%
B) 3.17%
C) 4.17%
D) 3.25%
E) 3.38%

Question 55

If D₀ = $2.25,g (which is constant)= 3.5%,and P₀ = $52,then what is the stock's expected dividend yield for the coming year?

A) 3.36%
B) 3.81%
C) 4.61%
D) 4.48%
E) 4.25%

Question 56

A stock just paid a dividend of D₀ = $1.50.The required rate of return is r_s = 9.0%,and the constant growth rate is g = 4.0%.What is the current stock price?

A) $32.14
B) $34.32
C) $27.14
D) $36.19
E) $31.20

Question 57

Which of the following statements is CORRECT?

A) To implement the corporate valuation model,we discount projected free cash flows at the weighted average cost of capital.
B) To implement the corporate valuation model,we discount net operating profit after taxes (NOPAT)at the weighted average cost of capital.
C) To implement the corporate valuation model,we discount projected net income at the weighted average cost of capital.
D) To implement the corporate valuation model,we discount projected free cash flows at the cost of equity capital.
E) The corporate valuation model requires the assumption of a constant growth rate in all years.

Question 58

For a stock to be in equilibrium-that is,for there to be no long-term pressure for its price to change-the

A) expected future return must be less than the most recent past realized return.
B) past realized return must be equal to the expected return during the same period.
C) required return must equal the realized return in all periods.
D) expected return must be equal to both the required future return and the past realized return.
E) expected future return must be equal to the required return.

Question 59

If D₀ = $1.75,g (which is constant)= 3.6%,and P₀ = $34.00,then what is the stock's expected total return for the coming year?

A) 8.58%
B) 8.93%
C) 7.41%
D) 9.20%
E) 6.97%

Question 60

Mooradian Corporation's free cash flow during the just-ended year (t = 0)was $160 million,and its FCF is expected to grow at a constant rate of 5.0% in the future.Assume the firm has zero non-operating assets.If the weighted average cost of capital is 12.5%,what is the firm's total corporate value,in millions?

A) $2,240
B) $2,374
C) $2,710
D) $2,016
E) $2,778

Question 61

Sorenson Corp.'s expected year-end dividend is D₁ = $1.90,its required return is r_s = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years,i.e. ,what is ? Do not round intermediate calculations.

A) $37.87
B) $50.35
C) $47.68
D) $38.77
E) $44.56

Question 62

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. ​

A) $564.95
B) $660.88
C) $522.31
D) $442.37
E) $532.97

Question 63

Based on the corporate valuation model,Morgan Inc.'s total corporate value is $325 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?

A) $15.02
B) $15.84
C) $14.85
D) $16.50
E) $12.54

Question 64

Based on the corporate valuation model,Gray Entertainment's total corporate value is $1,175 million.The company's balance sheet shows $120 million of notes payable,$300 million of long-term debt,$50 million of preferred stock,$180 million of retained earnings,and $800 million of total common equity.If the company has 30 million shares of stock outstanding,what is the best estimate of its price per share?

A) $24.44
B) $27.97
C) $23.50
D) $28.20
E) $29.38

Question 65

Misra Inc.forecasts a free cash flow of $80 million in Year 3,i.e. ,at t = 3,and it expects FCF to grow at a constant rate of 5.5% thereafter.If the weighted average cost of capital (WACC)is 10.0% and the cost of equity is 15.0%,then what is the horizon,or continuing,value in millions at t = 3?

A) $1,876
B) $1,763
C) $1,744
D) $2,251
E) $2,063

Question 66

Based on the corporate valuation model,Wang Inc.'s total corporate value is $800 million.Its balance sheet shows $100 million notes payable,$200 million of long-term debt,$40 million of common stock (par plus paid-in-capital),and $160 million of retained earnings.What is the best estimate for the firm's value of equity (in millions)?

A) $520
B) $500
C) $380
D) $400
E) $415

Question 67

Kale Inc.forecasts the free cash flows (in millions)shown below.Assume the firm has zero non-operating assets.If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2,then what is the firm's total corporate value (in millions)? Do not round intermediate calculations. ​

A) $2,260
B) $2,452
C) $2,345
D) $1,876
E) $2,132

Question 68

Francis Inc.'s stock has a required rate of return of 10.25%,and it sells for $80.00 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?

A) $3.40
B) $4.25
C) $3.57
D) $3.23
E) $2.89

Question 69

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $33.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D₀?

A) $1.64
B) $1.50
C) $1.29
D) $1.39
E) $1.42

Question 70

The Francis Company is expected to pay a dividend of D₁ = $1.25 per share at the end of the year,and that dividend is expected to grow at a constant rate of 6.00% per year in the future.The company's beta is 0.85,the market risk premium is 5.50%,and the risk-free rate is 4.00%.What is the company's current stock price? Do not round intermediate calculations.

A) $49.53
B) $54.21
C) $46.73
D) $47.66
E) $51.40

Question 71

Rebello's preferred stock pays a dividend of $1.00 per quarter,and it sells for $57.50 per share.What is its effective annual (not nominal)rate of return?

A) 6.78%
B) 8.07%
C) 7.28%
D) 8.14%
E) 7.14%

Question 72

Schnusenberg Corporation just paid a dividend of D₀ = $0.75 per share,and that dividend is expected to grow at a constant rate of 6.50% per year in the future.The company's beta is 0.75,the required return on the market is 10.50%,and the risk-free rate is 4.50%.What is the company's current stock price? Do not round intermediate calculations.

A) $27.80
B) $28.76
C) $31.63
D) $31.95
E) $33.23

Question 73

Based on the corporate valuation model,the total corporate value of Chen Lin Inc.is $725 million.Its balance sheet shows $110 million in notes payable,$90 million in long-term debt,$20 million in preferred stock,$140 million in retained earnings,and $280 million in total common equity.If the company has 25 million shares of stock outstanding,what is the best estimate of its stock price per share?

A) $20.20
B) $18.18
C) $21.21
D) $22.83
E) $24.44

Question 74

Gupta Corporation is undergoing a restructuring,and its free cash flows are expected to vary considerably during the next few years.However,the FCF is expected to be $25.00 million in Year 5,and the FCF growth rate is expected to be a constant 6.5% beyond that point.The weighted average cost of capital is 12.0%.What is the horizon (or continuing)value (in millions)at t = 5?

A) $387
B) $421
C) $562
D) $484
E) $402

Question 75

Molen Inc.has an outstanding issue of perpetual preferred stock with an annual dividend of $4.00 per share.If the required return on this preferred stock is 6.5%,then at what price should the stock sell?

A) $61.54
B) $64.62
C) $48.00
D) $52.92
E) $63.38

Question 76

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 1.65,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.

A) $10.08
B) $11.72
C) $13.83
D) $12.66
E) $13.60

Question 77

You have been assigned the task of using the corporate,or free cash flow,model to estimate Petry Corporation's intrinsic value.The firm's WACC is 10.00%,its end-of-year free cash flow (FCF₁)is expected to be $75.0 million,the FCFs are expected to grow at a constant rate of 5.00% a year in the future,the company has $200 million of long-term debt and preferred stock,and it has 30 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.

A) $34.23
B) $42.90
C) $53.30
D) $42.03
E) $43.33

Question 78

Kedia Inc.forecasts a negative free cash flow for the coming year,FCF₁ = -$10 million,but it expects positive numbers thereafter,with FCF₂ = $38 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.

A) $375.72
B) $308.33
C) $357.83
D) $324.56
E) $340.79

Question 79

You must estimate the intrinsic value of Noe Technologies' stock.The end-of-year free cash flow (FCF₁)is expected to be $23.50 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.

A) $33.79
B) $43.89
C) $44.77
D) $52.67
E) $44.33

Question 80

Carter's preferred stock pays a dividend of $1.00 per quarter.If the price of the stock is $70.00,what is its nominal (not effective)annual rate of return?

A) 4.29%
B) 6.57%
C) 6.74%
D) 4.86%
E) 5.71%