1) HNV Inc. had FCFE of $2 (FCFE0) on $4 (E0) of earnings last year. FCFE and earning are expected to grow at 20% (g1) over the next 2 years. To calculate the two year price target, you use an expected P/E ratio of 8. Using an appropriate discount rate of 10% and a 2-stage FCFE, what is the intrinsic value of its stock?

a. $46.08

b. $48.00

c. $34.91

d. $38.08

e. $42.65

2) An underpriced stock provides an expected return that is ____________ the required return based on the capital asset pricing model (CAPM).

a. equal to

b. None of the other answers is correct

c. greater than or equal to

d. greater than

e. less than

3) Brevik Builders has an expected ROE of 25%. Its sustainable dividend growth rate will be __________ if it follows a policy of paying 30% of earnings in the form of dividends.

a. 5%

b. 75%

c. 15%

d. 17.5%

e. 45%