Q5. In the above case, at 95% level of confidence, the minimum rate of return is:

a. Expected rate of return 2 std. deviations

b. Expected rate of return 2 variances

c. Expected rate return - 3 std. deviations

d. Expected rate of return - 3 variances

e. None of the above. My answer is .

Q6. In computing the FCF (free cash flow), which variable is irrelevant

a. EBIT

b. Sales tax

c. Interest expense

d. Net working capital

e. All affect the free cash flow (FCF)

The value of EBIT is 60% of sales. Estimated sales are $20,000,000. Depreciation is $70,000. Capital expenditures are 3% of sales. The increase in net working capital is $50,000. There are 1,000,000 shares outstanding. The tax rate is 20%.

Q7. The free cash flow per share is:

a. $.902

b. 90.20

c. $9.02

d. Less than $8.90

e. None of the above is correct. My answer is $..

Q8. Assume the estimated free cash flow per share is -$1. Assuming the discount rate is 10% and the growth rate is zero. In this case, the fair value of the stock is

a. -$10 (it is worth below zero in the market)

b. even less than -$10.

c. more than $10

d. Zero; worth nothing.