1. The first stage of a multistage FCFFM frequently incorporates analysts’ individual earnings and dividend forecasts for some finite period. The final stage is often modeled using the Constant-Growth FCFFM based on __________.
A. a growth rate that is always higher than the nominal growth rate of the economy
B. a growth rate that is not stable
C. a growth rate that is stable and comparable to the nominal growth rate of the economy
D. none of the above
2. Because the DDM requires multiple input variable estimates, investors should __________.
A. carefully examine the input estimates to the model
B. perform sensitivity analysis on price estimates by changing the input estimates
C. feel confident that their input estimates are always correct
D. both A and B
3. You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $1.25 in dividends and $32 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.
A. $30.23
B. $24.11
C. $26.52
D. $27.50
4. Fly Boy Corporation is expected to have NI of $560k this year. Fly Boy is in the 30 percent tax bracket, will report $52,000 in depreciation, will make $86,000 in capital expenditures, will have no capital sales, will pay no interest and will have a $16,000 increase in net working capital. What is Fly Boy’s expected FCFF?
A. $342,000
B. $586,000
C. $542,000
D. $510,000