Question
1. A company's Equity to Total Capital ratio is 60 % . Its Required Return on Equity from a Fama - French 3 factor model
1. A company's Equity to Total Capital ratio is 60 % . Its Required Return on Equity from a Fama - French 3 factor model is 8 % . Its pre - tax interest cost of debt is 4 % . The corporate tax rate is 20 % . The company's RAOCC is :
A. 12.25 %
B. 8.00 %
C. 6.08 %
D. 4.20 %
2. Suppose the company in Question 36 above is in its long - term , ' steady state ' growth rate . It expects FCFF to the Firm of $ 5 per share to grow consistently at 3 % per year for the indefinitely long future . The company's stock is currently selling for $ 130 . Your DCF model indicates the price target of its fundamental and the stock should be value is
A. $ 97.00 ; sold
B. $ 310.46 ; bought
C. $ 130.90 ; held
D. $ 162.34 ; bought .
3. The advantages of estimating a required return on equity with a three factor Fama - French type model rather than a single factor CAPM model are
A. It takes less time and is less expensive .
B. Three factor models are easier to use .
C.More accurate estimates of required returns on equity and , as a result , more accurate valuations .
D. There are no advantages of three factor versus the traditional CAPM models .
4. Characteristics of Growth stocks versus Value stocks include :
A. Low Market - to - Book Values ; Low P / E ratios ; High Dividend Payout ratios .
B. Firm is in a mature industry ; High earnings yield ; High earnings growth .
C. High P / E ratios ; High earnings yields ; High Dividend Payout ratios .
D. High Market - to - Book Values ; High P / E ratios ; Low Dividend Payout ratios
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