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Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?


A) $26.77
B) $27.89
C) $29.05
D) $30.21
E) $31.42

F) None of the above
G) All of the above

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Classified stock differentiates various classes of common stock, and 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.

A) True
B) False

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Gay 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 $32.50 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) 6.01%
B) 6.17%
C) 6.33%
D) 6.49%
E) 6.65%

F) A) and B)
G) C) and D)

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Based on the corporate valuation model, Morgan Inc.'s total corporate value is $300 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) $12.00
B) $12.64
C) $13.30
D) $14.00
E) $14.70

F) All of the above
G) B) and D)

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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, 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, 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.

F) A) and C)
G) All of the above

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Ryan Enterprises forecasts the free cash flows (in millions) shown below. 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?


A) $314.51
B) $331.06
C) $348.48
D) $366.82
E) $386.13

F) C) and E)
G) None of the above

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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.

F) A) and C)
G) A) and E)

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Based on the corporate valuation model, Wang Inc.'s total corporate value is $750 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) $386
B) $406
C) $428
D) $450
E) $473

F) D) and E)
G) B) and D)

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Your boss, Sally Maloney, treasurer of Fred Clark Enterprises (FCE) Sally told you that the growth rates in the template were just put in as a trial, and that you must replace them with the analysts' forecasted rates to get the correct forecasted dividends and then the estimated HV. She also notes that the estimated value for rs, at the top of the template, is also just a guess, and you must replace it with a value that will cause the Calculated Price shown at the bottom to equal the Actual Market Price. She suggests that, after you have put in the correct dividends, you can manually calculate the price, using a series of guesses as to the Estimated rs. The value of rs that causes the calculated price to equal the actual price is the correct one. She notes, though, that this trial-and-error process would be quite tedious, and that the correct rs could be found much faster with a simple Excel model, especially if you use Goal Seek. What is the value of rs?


A) 11.84%
B) 12.21%
C) 12.58%
D) 12.97%
E) 13.36%

F) D) and E)
G) A) and E)

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If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock's expected dividend yield for the coming year?


A) 4.12%
B) 4.34%
C) 4.57%
D) 4.81%
E) 5.05%

F) C) and E)
G) None of the above

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Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?


A) $ 9.94
B) $10.19
C) $10.45
D) $10.72
E) $10.99

F) B) and C)
G) A) and B)

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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. What is the firm's estimated intrinsic value per share of common stock?


A) $40.35
B) $41.82
C) $43.33
D) $44.85
E) $46.42

F) A) and B)
G) C) and E)

Correct Answer

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You must estimate the intrinsic value of Noe Technologies' stock. The end-of-year free cash flow (FCF1) is expected to be $27.50 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. What is the firm's estimated intrinsic value per share of common stock?


A) $48.64
B) $50.67
C) $52.78
D) $54.89
E) $57.08

F) C) and E)
G) A) and B)

Correct Answer

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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 If the company is in equilibrium and its expected and required rate of return is 15%, 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.

F) A) and C)
G) B) and E)

Correct Answer

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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.

A) True
B) False

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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, and, 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 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.
E) One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.

F) C) and D)
G) C) and E)

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Reddick Enterprises' stock currently sells for $35.50 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, rs, is 9.00%. What is the stock's expected price 3 years from today?


A) $37.86
B) $38.83
C) $39.83
D) $40.85
E) $41.69

F) A) and E)
G) B) and C)

Correct Answer

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The Ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?


A) $41.58
B) $42.64
C) $43.71
D) $44.80
E) $45.92

F) A) and E)
G) A) and C)

Correct Answer

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

A) True
B) False

Correct Answer

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A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?


A) $17.39
B) $17.84
C) $18.29
D) $18.75
E) $19.22

F) A) and B)
G) B) and E)

Correct Answer

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Showing 61 - 80 of 83

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