CHAPTER 8—BASIC STOCK VALUATION
45. 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?
a.
$17.39
b.
$17.84
c.
$18.29
d.
$18.75
e.
$19.22
c
46. 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.
$23.11
b.
$23.70
c.
$24.31
d.
$24.93
e.
$25.57
e
CHAPTER 8—BASIC STOCK VALUATION
47. A company’s free cash flow was just FCF0 = $1.50 million. The weighted average cost of capital is WACC = 10.1%,
and the constant growth rate is g = 4.0%. What is the current value of operations?
a.
$23.11 million
b.
$23.70 million
c.
$24.31 million
d.
$24.93 million
e.
$25.57 million
e
Difficulty: Easy
INTE.GENE.16.60 – LO: 8-5
United States – BUSPROG: Analytic
United States – AK – DISC: Stocks and Bonds
United States – OH – Default City – TBA
Constant growth free cash flow valuation
TYPE: Multiple Choice: Problem
48. A share of Lash Inc.’s 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.
$16.28
b.
$16.70
c.
$17.13
d.
$17.57
e.
$18.01
INTE.GENE.16.55 – LO: 8-11
United States – BUSPROG: Analytic
United States – AK – DISC: Stocks and Bonds
United States – OH – Default City – TBA
Constant growth dividend valuation
TYPE: Multiple Choice: Problem
CHAPTER 8—BASIC STOCK VALUATION
49. Lance Inc.’s free cash flow was just $1.00 million. If the expected long-run growth rate for this company is 5.4%, if
the weighted average cost of capital is 11.4%, Lance has $4 million in short-term investments and $3 million in debt, and
1 million shares outstanding, what is the intrinsic stock price?
a.
$17.28
b.
$17.70
c.
$18.13
d.
$18.57
e.
$19.01
Difficulty: Easy
INTE.GENE.16.60 – LO: 8-5
United States – BUSPROG: Analytic
United States – AK – DISC: Stocks and Bonds
United States – OH – Default City – TBA
Constant growth free cash flow valuation
TYPE: Multiple Choice: Problem
50. Franklin Corporation 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,
Difficulty: Easy
INTE.GENE.16.55 – LO: 8-11
United States – AK – DISC: Stocks and Bonds
United States – OH – Default City – TBA
Constant growth dividend valuation
TYPE: Multiple Choice: Problem
CHAPTER 8—BASIC STOCK VALUATION
g, forever. What is the equilibrium expected growth rate?
a.
6.01%
b.
6.17%
c.
6.33%
d.
6.49%
e.
6.65%
e
51. $35.50 per share is the current price for Foster Farms’ stock. 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
e
CHAPTER 8—BASIC STOCK VALUATION
52. Kelly Enterprises’ stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of
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.
$40.17
b.
$41.20
c.
$42.26
d.
$43.34
e.
$44.46
e
53. 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%
CHAPTER 8—BASIC STOCK VALUATION
54. 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%
d.
5.13%
e.
5.39%
55. 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
CHAPTER 8—BASIC STOCK VALUATION
56. 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%
c.
7.93%
d.
8.13%
e.
8.34%
e
57. 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
CHAPTER 8—BASIC STOCK VALUATION
58. 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?
a.
$719
b.
$757
c.
$797
d.
$839
e.
$883
e
59. Gere Furniture forecasts a free cash flow of $40 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a
constant rate of 5% thereafter. If the weighted average cost of capital is 10% and the cost of equity is 15%, what is the
horizon value, in millions at t = 3?
a.
$840
b.
$882
c.
$926
d.
$972
e.
$1,021
a
CHAPTER 8—BASIC STOCK VALUATION
60. 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
c
61. 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
CHAPTER 8—BASIC STOCK VALUATION
b.
$1,805,000
c.
$1,900,000
d.
$2,000,000
e.
$2,100,000
Difficulty: Easy
INTE.GENE.16.60 – LO: 8-5
United States – BUSPROG: Analytic
United States – OH – Default City – TBA
Free cash flow valuation model, value of operations
TYPE: Multiple Choice: Problem
62. 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
e
Difficulty: Easy
INTE.GENE.16.59 – LO: 8-13
United States – BUSPROG: Analytic
United States – AK – DISC: Stocks and Bonds
United States – OH – Default City – TBA
Preferred stock valuation
TYPE: Multiple Choice: Problem
63. 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
CHAPTER 8—BASIC STOCK VALUATION
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
a
64. 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
a
CHAPTER 8—BASIC STOCK VALUATION
65. 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
a
66. 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
CHAPTER 8—BASIC STOCK VALUATION
67. Justus Motor Co.has a WACC of 11.50%, and its value of operations is $25.00 million. Justus’s free cash flow is
expected to grow at a constant rate of 7.00%. What was the last free cash flow, FCF0 in millions?
a.
$0.95
b.
$1.05
c.
$1.16
d.
$1.27
e.
$1.40
68. 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
CHAPTER 8—BASIC STOCK VALUATION
b.
$2.44
c.
$2.69
d.
$2.96
e.
$3.25
69. Judd Corporation has a weighted average cost of capital of 10.25%, and its value of operations is $57.50 million. Free
cash flow is expected to grow at a constant rate of 6.00% per year. What is the expected year-end free cash flow, FCF1 in
millions?
a.
$2.20
b.
$2.44
c.
$2.69
d.
$2.96
e.
$3.25
CHAPTER 8—BASIC STOCK VALUATION
70. 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
a
71. 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%
e