Question Details

Sorenson Corp.- expected year-end dividend 


1.	Stock X has the following data.  Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?

Expected dividend, D1	$3.00
Current Price, P0		$50
Expected constant growth rate	6.0%

a.	The stock- required return is 10%.
b.	The stock- expected dividend yield and growth rate are equal.
c.	The stock- expected dividend yield is 5%.
d.	The stock- expected capital gains yield is 5%.
e.	The stock- expected price 10 years from now is $100.00.
	

2.	Which of the following statements is NOT CORRECT?

a.	The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
b.	The corporate valuation model discounts free cash flows by the required return on equity.
c.	The corporate valuation model can be used to find the value of a division.
d.	An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
e.	Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.


3.	Which of the following statements is CORRECT?

a.	Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.
b.	The preferred stock of a given firm is generally less risky to investors than the same firm- common stock.
c.	Corporations cannot buy the preferred stocks of other corporations.
d.	Preferred dividends are not generally cumulative.
e.	A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.


4.	Molen Inc. 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 stock sell?

a.	$104.27
b.	$106.95
c.	$109.69
d.	$112.50
e.	$115.38
	

5.	The Isberg 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 the company's current stock price, P0?

a.	$18.62
b.	$19.08
c.	$19.56
d.	$20.05
e.	$20.55
	

6.	Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share.  Goode'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
	

7.	Sorenson Corp.- 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 Sorenson'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
	

8.	Kale Inc. forecasts the free cash flows (in millions) shown below.  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, what is the Year 0 value of operations, in millions?

Year	1	2	
Free cash flow	-$50	$100

a.	$1,456
b.	$1,529
c.	$1,606
d.	$1,686
e.	$1,770



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