Question 1

Investors expect Acme, Inc. to pay a dividend of $1.40 per share in one year. They also expect the price per share to be $25 in one year. If the equity cost of capital (rE) is 10%, what must be the current market price per share of Acme?

A. $23

B. $23.60

C. $24

D. $25

E. $26.40

Question 2

Investors expect Acme, Inc. to pay a dividend of $3.50 per share in one year. The price per share today is $20. If the equity cost of capital (rE) is 10%, what must investors expect the price per share of Acme to be one year from now?

A. $18.50

B. $20

C. $22

D. $23.50

E. $25.50

Question 3

Investors expect Acme, Inc. to pay a dividend of $5.00 per share in one year. The price per share today is $100. Investors expect the share price in one year to be $110.

a) The dividend yield is ______ % (round to the nearest percentage point, and don't include the % sign in your answer)

Question 4

Continuing the previous problem:

b) The expected capital gain rate is ____ % (round to the nearest percentage point, and don't include the % sign in your answer)

Question 5

Continuing the previous problem:

The equity cost of capital (rE) is _____ % (round to the nearest percentage point, and don't include the % sign in your answer)

Question 6

Summit Systems will pay a dividend of $1.50 this coming year. If you expect Summits dividend to grow at a constant rate of 6% per year indefinitely, what is its price per share today if its equity cost of capital is 11%? (round to the nearest dollar)

Question 7

Kenneth Cole Productions (KCP) currently does not pay a dividend. Suppose you do not expect KCP to start paying dividends until two years from now. You expect KCPs dividend in two years to be $11.20 per share (paid annually), and you expect it to grow by 2% per year thereafter. If KCPs equity cost of capital is 12%, what is the value of a share of KCP today?

A. $92

B. $100

C. $111.20

D. $112

E. $121

Question 8

IDX Technologies is a privately held developer of advanced security systems based in Chicago. As part of your business development strategy, in late 2016 you initiate discussions with IDXs founder about the possibility of acquiring the business at the end of 2016. You want to estimate the value of IDX per share using a discounted FCF approach and the following data:

Debt (year-end 2016): $30 million

Cash (year-end 2016): $110 million

Shares outstanding: 50 million

Expected FCF in 2017: $45 million

Expected FCF in 2018: $50 million

Future FCF growth rate beyond 2018: 5%

Weighted-average cost of capital: 10%

a) The terminal enterprise value (i.e. continuation value, or PV of all the FCF from 2019 and beyond) as of year-end 2018 is $______ mm.

A. $950 mm

B. $1,000 mm

C. $1,050 mm

D. $1,100 mm

E. $1,150 mm

b) The Enterprise value at the end of 2016 is $______ mm.

A. $900 mm

B.$950 mm

C. $1,000 mm

D. $1,050 mm

E. $1,100 mm

c) The total equity value (at the end of 2016) is $________ mm.

A. $930

B. $950

C. $1,030

D. $1,050

E. $1,130

The value of IDX per share (at the end of 2016) is $________.

A. $20.00

B. $20.20

C. $20.40

D. $20.60

E. $20.80