1.Which of the following statements is FALSE?

A.The perpetuity formula gives the present value of an infinite stream of dividends is valued at the same point in time as the first dividend.

B.If all earnings are paid out as dividends, DPR is 1.

C.The usefulness of a vaulation multiple will depend on the nature of the differences between firms and the sensitivity of the multiples to these differences.

D.(V₀)/(EBITDA₁) is an Enterprise Value Multiple.

2.You own some bonds issued by Another Failing Airline Inc. (AFA).When AFA issued the bonds it was in good financial health and was able to get a coupon rate of 6%.The bonds pay coupons annually, and have exactly 10 years remaining until maturity. Each bond has a face value of $1000.

Due to the recent increase in operating costs, most notably fuel prices, AFA is no longer able to pay the coupon payments on its bonds.At a creditors meeting, bond holders agreed to forgive the next 3 interest payments (starting with the payment due one year from today).This means that the next interest payment on the bonds will be made 4 years from today.After that, interest payments will be made annually until maturity. Given the risk of AFA and its recent credit downgrade to CC, the required return on these bonds is now 21.1%.

What is the fair price of one AFA bond?Enter your answer to the nearest cent.

3.WhichBank has just issued 90-day bank bills with a face value of $100,000. If the current 90-day bill rate is 2.5% p.a., what is the current value of these bank bills?Enter your answer to the nearest dollar.

4.TLF Co. has just paid a dividend of $2.00. It is expected that dividends will grow by 4% indefinitely. Assuming a discount rate of 12%, what is the current price of TLF Co?

A.$33.33

B.$15.30

C.$26.00

D.$17.33