The most appropriate discount rate to use when applying the Operating Free Cash Flows model is the firm's a. Required rate of return based on the capital asset pricing model (CAPM) b. Required rate of return based on the dividend discount model (DDM) c. Weighted average cost of capital (WACC) d. Historical cost of debt and equity e. All of the above are appropriate depending on the situation 5. Using the constant growth model, a decrease in the required rate of return from 15 to 13 percent combined with an increase in the growth rate from 5 to 6 percent would cause the price to 6. b. c. d. e, Rise more than 50%. Rise less than 50%. Remain constant. Fall more than 50%. Fall less than 50%. Exhibit 11.5 USE THE INFORMATION BELOW FOR PROBLEMS 7 &8 The National Motor Company's last dividend was $1.25 and the directors expect to maintain the historic 4 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 7 percent for the next three years and the stock will then reach $25.00 per share. Refer to Exhibit 11.5. How much should you be willing to pay for the stock if you require a 16 percent return? a. $17.34 b. $18.9 c. $19.09 d. $19.21 c. None of the above 7. 8. Refer to Exhibit 11.5. How much should you be willing to pay for the stock if you feel that the 7 percent growth rate can be maintained indefinitely and you require a 16 percent return? a $11.15 b. $14.44 c. $14.86 d. $18.90 e. $19.24