Question 1

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.

Accepted Answer

A) True 
 B)False  True

Question 2

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?

Accepted Answer

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

Question 3

Based on the free cash flow valuation model,the value of Weidner Co.'s operations is $1,200 million.The company's balance sheet shows $80 million in accounts receivable,$60 million in inventory,and $100 million in short-term investments that are unrelated to operations.The balance sheet also shows $90 million in accounts payable,$120 million in notes payable,$300 million in long-term debt,$50 million in preferred stock,$180 million in retained earnings,and $800 million in total common equity.If Weidner has 30 million shares of stock outstanding,what is the best estimate of the stock's price per share?

Accepted Answer

A)   $24.90
B)   $27.67
C)   $30.43
D)   $33.48
E)   $36.82F) C) and D)
G) A) and E)

Question 4

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?

Accepted Answer

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

Question 5

The Jameson 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 1.15,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is Jameson's current stock price,P0?

Accepted Answer

A)   $18.62
B)   $19.08
C)   $19.56
D)   $20.05
E)   $20.55F) B) and D)
G) A) and C)

Question 6

Burke Tires just paid a dividend of D0 = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Accepted Answer

A)   $41.59
B)   $42.65
C)   $43.75
D)   $44.87
E)   $45.99F) A) and E)
G) B) and D)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The value of Broadway-Brooks Inc.'s operations is $900 million,based on the free cash flow valuation model.Its balance sheet shows $70 million in accounts receivable,$50 million in inventory,$30 million in short-term investments that are unrelated to operations,$20 million in accounts payable,$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 the stock's price per share?

Accepted Answer

A)   $23.00
B)   $25.56
C)   $28.40
D)   $31.24
E)   $34.36F) A) and E)
G) C) and D)

Question 9

Orwell Building Supplies' 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?

Accepted Answer

A)   $41.58
B)   $42.64
C)   $43.71
D)   $44.80
E)   $45.92F) None of the above
G) A) and C)

Question 10

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?

Accepted Answer

A)   $23.11
B)   $23.70
C)   $24.31
D)   $24.93
E)   $25.57F) None of the above
G) B) and C)

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
B)   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.
C)   The stock valuation model,P0 = D1/(rs − g) ,cannot be used for firms that have negative growth rates.
D)   The stock valuation model,P0 = D1/(rs − g) ,can be used only for firms whose growth rates exceed their required returns.
E)   If a company has two classes of common stock,Class A and Class B,the stocks may pay different dividends,but under all state charters the two classes must have the same voting rights.F) C) and D)
G) All of the above

Question 12

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

Accepted Answer

A)   All common stocks,regardless of class,must have the same voting rights.
B)   All firms have several classes of common stock.
C)   All common stock,regardless of class,must pay the same dividend.
D)   Some class or classes of common stock are entitled to more votes per share than other classes.
E)   All common stocks fall into one of three classes: A,B,and C.F) A) and B)
G) B) and D)

Question 13

Decker Tires' free cash flow was just FCF0 = $1.32.Analysts expect the company's free cash flow to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The WACC for this company 9.00%.Decker has $4 million in short-term investments and $14 million in debt and 1 million shares outstanding.What is the best estimate of the stock's current intrinsic price?

Accepted Answer

A)   $31.59
B)   $32.65
C)   $33.75
D)   $34.87
E)   $35.99F) A) and B)
G) A) and C)

Question 14

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

Accepted Answer

A)   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.
B)   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.
C)   The stocks must sell for the same price.
D)   Stock Y must have a higher dividend yield than Stock X.
E)   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.F) B) and D)
G) B) and E)

Question 15

A company is expected to have free cash flows of $0.75 million next year.The weighted average cost of capital is WACC = 10.5%,and the expected constant growth rate is g = 6.4%.The company has $2 million in short-term investments,$2 million in debt,and 1 million shares.What is the stock's current intrinsic stock price?

Accepted Answer

A)   $17.39
B)   $17.84
C)   $18.29
D)   $18.75
E)   $19.22F) None of the above
G) B) and E)

Question 16

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%,which of the following statements is CORRECT?

Accepted Answer

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

Question 17

The last dividend paid by Wilden Corporation was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Accepted Answer

A)   $37.05
B)   $38.16
C)   $39.30
D)   $40.48
E)   $41.70F) B) and E)
G) None of the above

Question 18

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?

Accepted Answer

A)   $719
B)   $757
C)   $797
D)   $839
E)   $883F) B) and D)
G) A) and D) E

Question 19

If D0 = $1.75,g (which is constant) = 3.6%,and P0 = $32.00,what is the stock's expected total return for the coming year?

Accepted Answer

A)   8.37%
B)   8.59%
C)   8.81%
D)   9.03%
E)   9.27%F) None of the above
G) A) and E)

Question 20

The free cash flow valuation model cannot be used unless a company doesn't pay dividends.

Accepted Answer

A) True 
 B)False  False

Exam 7: Corporate Valuation and Stock Valuation

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.

Correct Answer
verified
True

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?

Correct Answer
verified

Correct Answer
verified

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 = 6.4%.What is the stock's current price?

Correct Answer
verified

The Jameson 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 1.15,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is Jameson's current stock price,P₀?

Correct Answer
verified

Burke Tires just paid a dividend of D₀ = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Orwell Building Supplies' 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 (r_s) is 12%.What is the best estimate of the current stock price?

Correct Answer
verified

A stock just paid a dividend of D₀ = $1.50.The required rate of return is r_s = 10.1%,and the constant growth rate is g = 4.0%.What is the current stock price?

Correct Answer
verified

Which of the following statements is CORRECT?

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

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

Correct Answer
verified

Correct Answer
verified

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%,which of the following statements is CORRECT?

Correct Answer
verified

The last dividend paid by Wilden Corporation was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (r_s) is 12.0%.What is the best estimate of the current stock price?

Correct Answer
verified

Correct Answer
verified
E

If D₀ = $1.75,g (which is constant) = 3.6%,and P₀ = $32.00,what is the stock's expected total return for the coming year?

Correct Answer
verified

The free cash flow valuation model cannot be used unless a company doesn't pay dividends.

Correct Answer
verified
False

Exam 7: Corporate Valuation and Stock Valuation

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.

Correct AnswerverifiedTrue

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The Jameson 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 1.15,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is Jameson's current stock price,P0?

Correct AnswerverifiedShow Answer

Burke Tires just paid a dividend of D0 = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Orwell Building Supplies' 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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

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

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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%,which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The last dividend paid by Wilden Corporation was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

If D0 = $1.75,g (which is constant) = 3.6%,and P0 = $32.00,what is the stock's expected total return for the coming year?

Correct AnswerverifiedShow Answer

The free cash flow valuation model cannot be used unless a company doesn't pay dividends.

Correct AnswerverifiedFalse

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified

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 = 6.4%.What is the stock's current price?

Correct Answer
verified

The Jameson 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 1.15,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is Jameson's current stock price,P₀?

Correct Answer
verified

Burke Tires just paid a dividend of D₀ = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Orwell Building Supplies' 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 (r_s) is 12%.What is the best estimate of the current stock price?

Correct Answer
verified

A stock just paid a dividend of D₀ = $1.50.The required rate of return is r_s = 10.1%,and the constant growth rate is g = 4.0%.What is the current stock price?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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%,which of the following statements is CORRECT?

Correct Answer
verified

The last dividend paid by Wilden Corporation was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (r_s) is 12.0%.What is the best estimate of the current stock price?

Correct Answer
verified

Correct Answer
verified
E

If D₀ = $1.75,g (which is constant) = 3.6%,and P₀ = $32.00,what is the stock's expected total return for the coming year?

Correct Answer
verified

Correct Answer
verified
False