CHAPTER 09—STOCKS AND THEIR VALUATION
c
EASY
49. 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?
a.
b.
c.
d.
e.
e
EASY
50. 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 11.4%, what is the stock price?
a.
b.
c.
d.
CHAPTER 09—STOCKS AND THEIR VALUATION
e.
EASY
51. 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%
EASY
52. If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock’s expected dividend yield for the coming
year?
a.
4.42%
b.
4.66%
c.
4.89%
CHAPTER 09—STOCKS AND THEIR VALUATION
d.
5.13%
e.
5.39%
EASY
53. If D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock’s expected capital gains yield for the
coming year?
a.
6.50%
b.
6.83%
c.
7.17%
d.
7.52%
e.
7.90%
a
EASY
54. If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock’s expected total return for the coming
year?
a.
7.54%
b.
7.73%
CHAPTER 09—STOCKS AND THEIR VALUATION
c.
7.93%
d.
8.13%
e.
8.34%
e
EASY
55. 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?
a.
8.37%
b.
8.59%
c.
8.81%
d.
9.03%
e.
9.27%
e
EASY
56. 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?
CHAPTER 09—STOCKS AND THEIR VALUATION
a.
6.01%
b.
6.17%
c.
6.33%
d.
6.49%
e.
6.65%
e
EASY
57. 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.
b.
c.
d.
e.
e
EASY
58. Whited Inc.’s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of
CHAPTER 09—STOCKS AND THEIR VALUATION
4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock’s expected price 5 years from
now?
a.
b.
c.
d.
e.
e
EASY
59. Mooradian Corporation’s free cash flow during the just-ended year (t = 0) was $150 million, and its FCF is expected to
grow at a constant rate of 5.0% in the future. If the weighted average cost of capital is 12.5%, what is the firm’s total
corporate value, in millions?
a.
b.
c.
d.
e.
c
EASY
CHAPTER 09—STOCKS AND THEIR VALUATION
60. Suppose Boyson Corporation’s projected free cash flow for next year is FCF1 = $150,000, and FCF is expected to
grow at a constant rate of 6.5%. If the company’s weighted average cost of capital is 11.5%, what is the firm’s total
corporate value?
a.
$2,572,125
b.
$2,707,500
c.
$2,850,000
d.
$3,000,000
e.
$3,150,000
EASY
61. Molen Inc. 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 stock sell?
a.
$104.27
b.
$106.95
c.
$109.69
d.
$112.50
e.
$115.38
e
EASY
CHAPTER 09—STOCKS AND THEIR VALUATION
62. 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 1.15, the market risk premium is
5.50%, and the risk-free rate is 4.00%. What is the company’s current stock price?
a.
b.
c.
d.
e.
a
MODERATE
63. 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 1.15, the market risk premium is 5.00%, and the risk-free rate is
4.00%. What is the company’s current stock price, P0?
a.
b.
c.
d.
e.
a
MODERATE
CHAPTER 09—STOCKS AND THEIR VALUATION
64. 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 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.
b.
c.
d.
e.
a
MODERATE
65. Goode Inc.’s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Goode’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
CHAPTER 09—STOCKS AND THEIR VALUATION
66. Francis Inc.’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
MODERATE
67. Sorenson Corp.’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 Sorenson’s expected stock price in 7 years, i.e.,
what is ?
a.
b.
c.
d.
e.
MODERATE
CHAPTER 09—STOCKS AND THEIR VALUATION
68. 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 $65.00 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.
b.
c.
d.
e.
e
MODERATE
9-7 Enterprise-Based Approach to Valuation
FOFM.BRIG.16.09.07 – Enterprise-Based Approach to Valuation
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.01 – Stocks and bonds
Corporate valuation model
Bloom’s: Analysis
Multiple Choice: Problem
69. Misra Inc. forecasts a free cash flow of $35 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%, what is
a
MODERATE
9-5 Constant Growth Stocks
FOFM.BRIG.16.09.05 – Constant Growth Stocks
United States – BUSPROG.FOFM.BRIG.16.03 – Analytic skills
United States – OH – DISC.FOFM.BRIG.16.01 – Stocks and bonds
Constant growth: future price
Bloom’s: Analysis
Multiple Choice: Problem
CHAPTER 09—STOCKS AND THEIR VALUATION
the horizon, or continuing, value in millions at t = 3?
a.
$821
b.
$862
c.
$905
d.
$950
e.
$997
a
MODERATE
70. 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.
b.
c.
d.
e.
c
MODERATE
CHAPTER 09—STOCKS AND THEIR VALUATION
71. 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.
b.
c.
d.
e.
c
MODERATE
72. Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = −$10 million, but it expects positive
numbers thereafter, with FCF2 = $25 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If
the weighted average cost of capital is 14.0%, what is the firm’s total corporate value, in millions?
a.
$200.00
b.
$210.53
c.
$221.05
d.
$232.11
e.
$243.71