Solved by verified expert :71.
Stone
Cold Incorporated reported net income of $10 million for 2003. In addition,
shareholder equity for the firm was $80 million at the end of 2003. The company
was able to pay $3 million out as dividends to the shareholders for 2003. After
2003, excess paid-in-capital was $60 million. Given this information, what is
the growth rate available for Stone Cold?
a.
3.75%
b.
5.00%
c.
7.50%
d.
8.75%
72.
For
a stock pricing model, an analyst selects 10% as the sustainable growth rate in
dividends for a firm. Given that the firm pays out 40% of net income as
dividends each year, what is the return on shareholder equity for this firm?
a.
2.50%
b.
4.00%
c.
10.00%
d.
16.67%
73.
A
stock is expected to pay a dividend of $3.00 in one year. To purchase the
stock, investors seek a 15% annual return. If the stock is currently trading at
$60, what is the implied constant growth rate in dividends for the future?
a.
5%
b.
10%
c. 15%
d.
20%
NARRBEGIN: Normaltown Corporation
Normaltown Corporation
An analyst has predicted the free
cash flows for Normaltown Corporation for the next four years:
YEAR
FCF
2004
$10 million
2005
$15 million
2006
$22 million
2007
$29 million
NARREND
74.
After
2007, the free cash flows are expected to grow at an annual rate of 5%. If the
weighted average cost of capital is 12% for Normaltown, find the enterprise value
of the firm.
a.
$54.98
million
b.
$301.81
million
c.
$313.00
million
d.
$331.43
million
75.
After
2007, the free cash flows are expected to grow at an annual rate of 5%. The
weighted average cost of capital for Normaltown is 12%. If the market value of
the firm’s debt is $100 million, find the value of the firm’s equity.
a.
$201.81
million
b.
$213.00
million
c.
$231.43
million
d.
$271.20
million
