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(9-4) Common Stock Cash Flows FG Answer: A EASY
(9-4) Common Stock Cash Flows FG Answer: A EASY
1. The cash flows associated with common stock are more difficult to
estimate than those related to bonds because stock has a residual claim
against the company versus a contractual obligation for a bond.
a. True
b. False
a. True
b. False
a. True
b. False
a. True
b. False
a. True
b. False
(9-7) Corporate valuation model C G Answer: a MEDIUM
6. Which of the following statements is CORRECT?
a. $1,895
b. $1,995
c. $2,100
d. $2,205
e. $2,315
a. $104.27
b. $106.95
c. $109.69
d. $112.50
e. $115.38
(9-7) Corporate valuation model C G Answer: c MEDIUM
10. You have been assigned the task of using the corporate, or free cash
flow, model to estimate Petry Corporation's intrinsic value. The
firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected
to be $75.0 million, the FCFs are expected to grow at a constant rate
of 5.00% a year in the future, the company has $200 million of long-
term debt and preferred stock, and it has 30 million shares of common
stock outstanding. What is the firm's estimated intrinsic value per
share of common stock?
a. $40.35
b. $41.82
c. $43.33
d. $44.85
e. $46.42
a. $1,025
b. $1,079
c. $1,136
d. $1,196
e. $1,259
Year 1 2 3
FCF -$15.0 $10.0 $40.0
a. $314.51
b. $331.06
c. $348.48
d. $366.82
e. $386.13
(9-7) Corporate valuation model C G Answer: d MEDIUM
13. Based on the corporate valuation model, Wang Inc.’s value of operations
is $750 million. Its balance sheet shows $100 million notes payable,
$200 million of long-term debt, $40 million of common stock (par plus
paid-in-capital), and $160 million of retained earnings. What is the
best estimate for the firm’s value of equity, in millions?
a. $386
b. $406
c. $428
d. $450
e. $473