Quiz2_Solution - Introduction to Finance, Summer 2010, Quiz...

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Introduction to Finance, Summer 2010, Quiz 2 Name: _____________________________________________ QUIZ 2 Introduction to Finance [This quiz is worth one half of 15% of your overall grade] Please choose the correct answer. Q1. Which of the following statements is CORRECT? a. Preferred stockholders have a priority over bondholders in the event of bankruptcy. b. The preferred stock of a given firm is generally less risky to investors than the same firm’s common stock. c. Corporations cannot buy the preferred stocks of other corporations. d. Preferred dividends are not generally cumulative. e. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation. Q2. The Francis Company is expected to pay a dividend of D 1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price? a. $28.90 b. $29.62 c. $30.36 d. $31.12 e. $31.90 Q3. Mooradian Corporation’s free cash flow during the just-ended year (t = 0) was $150 million, and its FCF (Free Cash Flow) is expected to grow at a constant rate of 5.0% in the future. If the weighted average cost of capital is 12.5%, what is the firm’s value of operations, in
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Quiz2_Solution - Introduction to Finance, Summer 2010, Quiz...

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