3. You must estimate the intrinsic value of Noe Technologies' stock. The end-of-year 1 free cash flow (FCF1) is expected to be $27.50 million, and it is expected to grow at a constant rate of 7.0% (.07) a year thereafter. The company's WACC is 10.0% (.10) it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of the common stock?

a. $52.78 b. $57.08 c. $50.67 d. $54.89 e. $48.64

4. Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected. WACC: 10.00% Year 0 1 2 3 Cash flows $1,050 $450 $460 $470

a. $ 92.37 b. $112.28 c. $ 96.99 d. $101.84 e. $106.93

5. You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7%, and the cost of retained earnings is 12.75%. The firm will not be issuing any new stock. What is its WACC? (Work the problem with %'s for the respective costs, eg. for instance cost of retained earnings = 12.75, round off to two places)

a. 10.12% b. 9.19% c. 9.54% d. 8.98% e. 9.83%

Indicate whether the statement is true or false.

6. When evaluating independent projects with the NPV method, the decision rule is to reject all projects that have a positive NPV (NPV>0).

a. True b. False

11. 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 if it sells for its equilibrium price?

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

12. The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% (.06) per year in the future. The company's beta is 1.15, the market risk premium is 5.50% (.055) and the risk-free rate is 4.00% (.04) What is the current equilibrium value of the company's stock per share assuming the CAPM accurately estimates the required return on equity?

a. $31.12 b. $29.62 c. $28.90 d. $31.90 e. $30.36

13. Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The annual yield to matruity on the company's outstanding bonds is 7.75%, its tax rate is 40%, the next expected dividend is $0.65 (D1 = $.65) a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is $15.00 per share, the flotation cost for selling new shares is F = 10% (.10 in decimal form), and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?

a. 6.89% b. 8.44% c. 7.64% d. 8.04% e. 7.26%

14. O'Brien Inc. has the following data: risk free interest rate = rRF = 5.00%; market risk premium = RPM = 6.00%; and beta = b = 1.05. What is the firm's cost of equity from retained earnings based on the CAPM? (Work the problem using %'s for the respective returns and the risk premium, eg. risk free interest rate = 5.00)

a. 12.35% b. 11.99% c. 12.72% d. 11.30% e. 11.64%

19. Simms Corp. is considering a project that has the following cash flow data. What is the project's IRR? Year 0 1 2 3 Cash flows $1,000 $425 $425 $425

a. 13.21% b. 14.56% c. 13.87% d. 12.55% e. 15.29%

20. Last month, Lloyd's Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the NPV of the project change as a result of the change in the WACC? (round off to two decimal places) Old WACC: 10.00% New WACC: 11.25% Year 0 1 2 3 Cash flows $1,000 $410 $410 $410

a. $20.93 b. $18.89 c. $22.03 d. $23.13 e. $19.88

Indicate whether the statement is true or false.

21. Other things held constant, an increase in the cost of capital will result in an increase in a project's NPV.

a. True b. False Indicate the answer choice that best completes the statement or answers the question.

22. Bosio Inc.'s perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. What is the company's cost of preferred stock for use in calculating the WACC? Assume there are no flotation costs incurred when selling new preferred stock.

a. 10.22% b. 9.08% c. 9.44% d. 9.82% e. 8.72%