FIN323 HW9

Janice Cosmetics has a constant dividend growth rate of 5% and just paid a dividend of $5.00. If the required rate of return is 15%, what will the stock sell for one year from now?

$55.13

What is the effective annual rate of 12% compounded quarterly?

12.55%

An annuity is defined as:

A set of level cash flows occurring each time period for a specific fixed length of time.

Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, then what is the firm's total corporate value (in millions)? Do not round intermediate calculations.

a. $2,132

A stock just paid a dividend of D 0 = $1.50. The required rate of return is r s = 9.0%, and the constant growth rate is g = 4.0%. What is the current stock price?

b. $31.20

Suppose a company has preferred 5%, $100 par value preferred stock that is currently selling for $50 a share. What rate of return do investors require?

b. 10%

Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D 1 = $1.25). The stock sells for $22.50 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?

b. 4.94%

Which of the following statements is CORRECT?

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.

If a given investor believes that a stock's expected return exceeds its required return, then the investor most likely believes that

b. the stock is a good buy.

The Francis Company is expected to pay a dividend of D 1 = $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 0.85, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price? Do not round intermediate calculations.

c. $46.73

Whited Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 3.50% per year. The required rate of return on the stock, r s, is 11.50%. What is the stock's expected price 5 years from now?

d. $41.87

You must estimate the intrinsic value of Noe Technologies' stock. The end-of-year free cash flow (FCF 1) is expected to be $23.50 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. Assume the firm has zero non-operating assets. What is the firm's estimated intrinsic value per share of common stock? Do not round intermediate calculations.

d. $43.89

Suppose Boyson Corporation's projected free cash flow for next year is FCF 1 = $250,000, and FCF is expected to grow at a constant rate of 6.5%. Assume the firm has zero non-operating assets. If the company's weighted average cost of capital is 11.5%, then what is the firm's total corporate value?

d. $5,000,000

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 = 8.6%. What is the stock's current price?

e. $39.47

Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $4.00 per share. If the required return on this preferred stock is 6.5%, then at what price should the stock sell?

e. $61.54

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

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.

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

e. Some class or classes of common stock are entitled to more votes per share than other classes.

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? ABPrice $25 $25 Expected growth (constant) 10% 5% Required return 15% 15%

e. Stock A's expected dividend at t = 1 is only half that of Stock B.

A stock is expected to pay a year-end dividend of $2.00, i.e., D 1 = $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%, then which of the following statements is CORRECT?

e. The company's expected stock price at the beginning of next year is $9.50.

Ryan Enterprises forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. The weighted average cost of capital is 13.0%, and the FCFs are expected to continue growing at a 5.0% rate after Year 3. What is the firm's total corporate value (in millions)? Do not round intermediate calculations.

e.$532.97