-Misra Inc. forecasts a free cash flow of $20 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant rate of 5.5% thereafter. If the weighted average cost of capital (WACC) is 11.5% and the cost of equity is 15.5%, then what is the horizon, or continuing, value in millions at t = 3?
-Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?
| Expected dividend, D1 | $3.00 |
| Current Price, P0 | $50 |
| Expected constant growth rate | 6.0% |
| | a. The stock's expected dividend yield is 5%. | |
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| | b. The stock's expected price 10 years from now is $100.00. | |
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| | c. The stock's expected capital gains yield is 5%. | |
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| | d. The stock's required return is 10%. | |
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| | e. The stock's expected dividend yield and growth rate are equal. |
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-Which of the following statements is CORRECT?
| | a. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation. | |
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| | b. Preferred stockholders have a priority over bondholders to the income in the event of a bankruptcy, but not to the proceeds in the event of a liquidation. | |
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| | c. Preferred dividends are not generally cumulative. | |
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| | d. Corporations cannot buy the preferred stocks of other corporations. | |
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| | e. The preferred stock of a given firm is generally less risky to investors than the same firm's common stock. |
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-A stock just paid a dividend of D0 = $2.50. The required rate of return is rs = 12.4%, and the constant growth rate is g = 4.0%. What is the current stock price?
