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d.
$972
e.
$1,021
54. Young & Liu Inc.'s free cash flow during the just-ended year (t = 0) was $100 million, and FCF is
expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%,
what is the firm's value of operations, in millions?
a.
$948
b.
$998
c.
$1,050
d.
$1,103
e.
$1,158
55. The projected cash flow for the next year for Minesuah Inc. is $100,000, and FCF is expected to grow
at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of
its operations?
a.
$1,714,750
b.
$1,805,000
c.
$1,900,000
d.
$2,000,000
e.
$2,100,000
56. Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of
$7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the
preferred stock sell?
a.
$104.27
b.
$106.95
c.
$109.69
d.
$112.50
e.
$115.38
57. Dyer Furniture 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
1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Dyer's current stock
price?
a.
$28.90
b.
$29.62
c.
$30.36
d.
$31.12
e.
$31.90
58. 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?
a.
$18.62
b.
$19.08
c.
$19.56
d.
$20.05
e.
$20.55
59. National Advertising 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 1.25, 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?
a.
$14.52
b.
$14.89
c.
$15.26
d.
$15.64
e.
$16.03
60. Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share.
Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0?
a.
$0.95
b.
$1.05
c.
$1.16
d.
$1.27
e.
$1.40
61. Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 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?
a.
$2.20
b.
$2.44
c.
$2.69
d.
$2.96
e.
$3.25
62. Connolly Co.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its
dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's
expected stock price in 7 years, i.e., what is ?
a.
$37.52
b.
$39.40
c.
$41.37
d.
$43.44
e.
$45.61
63. Alcott's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is
its nominal (not effective) annual rate of return?
a.
8.03%
b.
8.24%
c.
8.45%
d.
8.67%
e.
8.89%
64. Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per
share. What is its effective annual (not nominal) rate of return?
a.
6.62%
b.
6.82%
c.
7.03%
d.
7.25%
e.
7.47%
65. 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?
a.
$41.59
b.
$42.65
c.
$43.75
d.
$44.87
e.
$45.99
66. Kinkead Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be −$10 million, but
its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4%
forever. If the weighted average cost of capital is 14%, what is the firm's value of operations, in
millions?
a.
$158
b.
$167
c.
$175
d.
$184
e.
$193
67. The free cash flows (in millions) shown below are forecast by Parker & Sons. If the weighted average
cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0
value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and
beyond (and do not make any half-year adjustments).
Year:
1
2
Free cash flow:
−$50
$100
a.
$1,456
b.
$1,529
c.
$1,606
d.
$1,686
e.
$1,770
68. Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average
cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3.
Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0
value of operations, in millions?
Year:
1
2
3
Free cash flow:
−$15
$10
$40
a.
$315
b.
$331
c.
$348
d.
$367
e.
$386
69. Reynolds Construction's value of operations is $750 million based on the corporate valuation model.
Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100
million of accounts payable, $100 million of 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.
$429
b.
$451
c.
$475
d.
$500
e.
$525
70. Based on the corporate 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?
a.
$24.90
b.
$27.67
c.
$30.43
d.
$33.48
e.
$36.82
71. The value of Broadway-Brooks Inc.'s operations is $900 million, based on the corporate 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?
a.
$23.00
b.
$25.56
c.
$28.40
d.
$31.24
e.
$34.36
72. Based on the corporate valuation model, Bizzaro Co.'s value of operations is $300 million. The
balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million
of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of
preferred stock, and $100 million of common equity. Bizzaro has 10 million shares of stock
outstanding. What is the best estimate of the stock's price per share?
a.
$13.72
b.
$14.44
c.
$15.20
d.
$16.00
e.
$16.80
73. McGaha Enterprises expects earnings and dividends to grow at a rate of 25% for the next 4 years, after
the growth rate in earnings and dividends will fall 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
74. 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?
a.
$41.58
b.
$42.64
c.
$43.71
d.
$44.80
e.
$45.92
75. 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?
a.
$37.05
b.
$38.16
c.
$39.30
d.
$40.48
e.
$41.70
76. The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to be constant
at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's
required return (rs) is 11%, what is its current stock price?
a.
$30.57
b.
$31.52
c.
$32.49
d.
$33.50
e.
$34.50
77. Sawchuck Consulting has been profitable for the last 5 years, but it 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?
Year
0
1
2
3
4
5
6
Growth rate
NA
NA
NA
NA
50.00%
25.00%
8.00%
Dividends
$0.000
$0.000
$0.000
$0.250
$0.375
$0.469
$0.506
a.
$9.94
b.
$10.19
c.
$10.45
d.
$10.72
e.
$10.99
78. The free cash flows (in millions) shown below are forecast by Simmons Inc. If the weighted average
cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after
Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?
Year:
1
2
3
Free cash flow:
−$20
$42
$45
a.
$586
b.
$617
c.
$648
d.
$680
e.
$714
79. The required return for Williamson Heating's stock is 12%, and the stock sells for $40 per share. The
firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% 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?
a.
5.17%
b.
5.44%
c.
5.72%
d.
6.02%
e.
6.34%
80. Julia Saunders is your boss and the treasurer of Foster Carter Enterprises (FCE). She asked you to help
her estimate the intrinsic value of the company's stock. FCE just paid a dividend of $1.00, and the
stock now sells for $15.00 per share. Julia asked a number of security analysts what they believe FCE's
future dividends will be, based on their analysis of the company. The consensus is that the dividend
will be increased by 10% during Years 1 to 3, and it will be increased at a rate of 5% per year in Year
4 and thereafter. Julia asked you to use that information to estimate the required rate of return on the
stock, rs, and she provided you with the following template for use in the analysis:
Julia 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
TV. 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%
