1. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend yield of 7.5% and a par value of $60. If the market value for the preferred stock is $70, what is the required return on this preferred stock?

a. 8.75% b. 5.89% c. 6.43% d.7.5%

2.Which of the following statement is not correct?

a. Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or continuing, value.

b.The corporate valuation model can be used to find the value of a division.

c. The corporate valuation model can only be used for companies that do not pay dividends.

d. An important step in applying the corporate valuation model is forecasting the firm's pro format financial statements.