SI's required return on equity is 11.3% and WACC is 9.8%. If FCFE is expected to grow at7.0% forever, the intrinsic value of SI's shares are ____________.A.$108.00B.$68.29C.$244.42D.$14.76E.none of the above$122.1M/12.43M = $9.823 FCFE per share; 9.823 * 1.07 = 10.51; 10.51/(.113 - .07) = 244.42Difficulty: Moderate116. Highpoint had a FCFE of $246M last year and has 123M shares outstanding. Highpoint'srequired return on equity is 10% and WACC is 9%. If FCFE is expected to grow at 8.0%forever, the intrinsic value of Highpoint's shares are ____________.A.$21.60B.$108C.$244.42D.$216.00E.none of the above$246M/123M = $2.00 FCFE per share; 2.00 * 1.08 = 2.16; 2.16/(.10 - .08) = 108Difficulty: Moderate117. SGA Consulting had a FCFE of $3.2M last year and has 3.2M shares outstanding. SGA'srequired return on equity is 13% and WACC is 11.5%. If FCFE is expected to grow at 8.5%forever, the intrinsic value of SGA's shares are ____________.A.$21.60B.$26.56C.$244.42D.$24.11E.none of the above$3.2M/3.2M = $1.00 FCFE per share; 1.00 * 1.085 = 1.085; 1.085/(.13 - .085) = 24.11Difficulty: Moderate18-59

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Chapter 18 - Equity Valuation Models18-60

Chapter 18 - Equity Valuation Models118. Seaman had a FCFE of $4.6B last year and has 113.2M shares outstanding. Seaman'srequired return on equity is 11.6% and WACC is 10.4%. If FCFE is expected to grow at 5%forever, the intrinsic value of Seaman's shares are ____________.A.$3,555.65B.$355.65C.$35.55D.$3.55E.none of the above$4.6B/113.2M = $40.636 FCFE per share; 40.636 * 1.05 = 42.6678; 42.6678/(.116 - .104) =3,555.65Difficulty: Moderate119. Consider the free cash flow approach to stock valuation. F&G Manufacturing Companyis expected to have before-tax cash flow from operations of $750,000 in the coming year. Thefirm's corporate tax rate is 40%. It is expected that $250,000 of operating cash flow will beinvested in new fixed assets. Depreciation for the year will be $125,000. After the comingyear, cash flows are expected to grow at 7% per year. The appropriate market capitalizationrate for unleveraged cash flow is 13% per year. The firm has no outstanding debt. Theprojected free cash flow of F&G Manufacturing Company for the coming year is _______.A.$250,000B.$180,000C.$300,000D.$380,000E.none of the aboveCalculations are shown below.Difficulty: Difficult18-61

Chapter 18 - Equity Valuation Models120. Consider the free cash flow approach to stock valuation. F&G Manufacturing Companyis expected to have before-tax cash flow from operations of $750,000 in the coming year. Thefirm's corporate tax rate is 40%. It is expected that $250,000 of operating cash flow will beinvested in new fixed assets. Depreciation for the year will be $125,000. After the comingyear, cash flows are expected to grow at 7% per year. The appropriate market capitalizationrate for unleveraged cash flow is 13% per year. The firm has no outstanding debt. The totalvalue of the equity of F&G Manufacturing Company should beA.$1,615,156.50B.$2,479,168.95C.$3,333,333.33D.$4,166,666.67E.none of the aboveProjected free cash flow = $250,000 (see test bank problem 18.119); V0= 250,000 / (.13 - .07)= $4,166,666.67.Difficulty: Difficult121. Boaters World is expected to have per share FCFE in year 1 of $1.65, per share FCFE inyear 2 of $1.97, and per share FCFE in year 3 of $2.54. After year 3, per share FCFE isexpected to grow at the rate of 8% per year. An appropriate required return for the stock is11%. The stock should be worth _______ today.

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Term

Spring

Professor

john

Tags

Dividend yield, P E ratio, Equity Valuation Models