1. The most appropriate discount rate to use when applying a FCFE valuation model is the __________.
required rate of return on equity
WACC
risk-free rate
required rate of return on equity or risk-free rate depending on the debt level of the firm
None of these is correct
2. An analyst has determined that the intrinsic value of Dell stock is $34 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 27, then it would be reasonable to assume the expected EPS of Dell in the coming year is _____.
$3.63
$4.44
$14.40
$1.26
None of these is correct
3. You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $3.50 in dividends and $42 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 10% return.
$23.91
$24.11
$26.52
$27.50
None of these is correct
4. Zero had a FCFE of $4.5M last year and has 2.25M shares outstanding. Zero's required return on equity is 10% and WACC is 8.2%. If FCFE is expected to grow at 8% forever, the intrinsic value of Zero's shares are ___________.
$108.00
$1080.00
$26.35
$14.76
None of these is correct
5. High Speed Company has an expected ROE of 15%. The dividend growth rate will be ________ if the firm follows a policy of paying 50% of earnings in the form of dividends.
3.0%
4.8%
7.5%
6.0%
None of these is correct
6. Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the coming year. Dividends are expected to decline at the rate of 2% per year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. The stock of Old Quartz Gold Mining Company has a beta of -0.25. The intrinsic value of the stock is _____.
$80.00
$133.33
$200.00
$400.00
None of these is correct
7. You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $0.75 in dividends and $16 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 12% return.
$23.91
$14.96
$26.52
$27.50
None of these is correct
8. A preferred stock will pay a dividend of $3.50 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 11% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.
$0.39
$0.56
$31.82
$56.25
None of these is correct