- 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.
$18.62
- 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
$14.52
- 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.
$25.57 million
- Reynolds Construction's value of operations is $750 million based on the free cash flow 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
d.
$500
- The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions):
Total assets
$7460
Interest-bearing debt
$3652
Average pre-tax borrowing cost
10.5%
Common equity:
Book value
$2950
Market value
$13685
Income tax rate
35%
Market equity beta
1.13
14 . Determine the weight on debt capital that should be used to calculate Zonk's weighted-average cost of capital:
a.
21.7%
b.
21.00%
c.
50%
d.
58.2%
b.
21.00%
- The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions):
Total assets
$7460
Interest-bearing debt
$3652
Average pre-tax borrowing cost
10.5%
Common equity:
Book value
$2950
Market value
$13685
Income tax rate
35%
Market equity beta
1.13
Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:
a.
79.00%
b.
78.3%
c.
41.8%
d.
50%
a.
79.00%
- Suppose the debt ratio (D/TA) is 50%, the interest rate on new debt is 8%, the current cost of equity is 16%, and the tax rate is 40%. An increase in the debt ratio to 60% would decrease the weighted average cost of capital (WACC).
a.
True
b.
False
b.
False
- If a firm is privately owned, and its stock is not traded in public markets, then we cannot measure its beta for use in the CAPM model, we cannot observe its stock price for use in the DCF model, and we don't know what the risk premium is for use in the bond-yield-plus-risk-premium method. All this makes it especially difficult to estimate the cost of equity for a private company.
a.
True
b.
False
a.
True
- The conceptual framework for free cash flows separates the balance sheet equation into the following categories:
a.
CA + LT A = CL + LT L + SE
b.
OA + FA = OL + FL + SE
c.
OA + FA = OL + FL + OSE + FSE
d.
Non-FA + FA = Non-FL + FL + SE
b.
OA + FA = OL + FL + SE
- The conceptual framework for free cash flows separates all assets and liabilities into the following categories:
a.
Current and non-current
b.
Monetary and non-monetary
c.
Operating and non-operating
d.
Operating and financial
d.
Operating and financial
