107 the most appropriate discount rate to use when

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107.The most appropriate discount rate to use when applying a FCFE valuation model isthe ___________.A)required rate of return on equityB) WACCC)risk-free rateD)A or C depending on the debt level of the firmE)none of the aboveAnswer: ADifficulty: Easy
108.The most appropriate discount rate to use when applying a FCFF valuation model isthe ___________.Difficulty: Easy
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Chapter 18Equity Valuation Models109.FCF and DDM valuations should be ____________ if the assumptions used areconsistent.Difficulty: Easy
110.Siri had a FCFE of $1.6M last year and has 3.2M shares outstanding.Siri's requiredreturn on equity is 12% and WACC is 9.8%.If FCFE is expected to grow at 9%forever, the intrinsic value of Siri's shares are ____________.
111.Zero had a FCFE of $4.5M last year and has 2.25M shares outstanding.Zero'srequired return on equity is 10% and WACC is 8.2%.If FCFE is expected to grow at8% forever, the intrinsic value of Zero's shares are ____________.A) $108.00B) $1080.00C) $26.35D) $14.76E)none of the aboveAnswer: ADifficulty: ModerateRationale: $4.5M/2.25M = $2.00 FCFE per share; 2.00*1.08 = 2.16; 2.16/(.10-.08) =108
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Chapter 18Equity Valuation Models112.Consider the free cash flow approach to stock valuation.F&G ManufacturingCompany is expected to have before-tax cash flow from operations of $750,000 in thecoming year.The firm's corporate tax rate is 40%.It is expected that $250,000 ofoperating cash flow will be invested in new fixed assets.Depreciation for the yearwill be $125,000.After the coming year, cash flows are expected to grow at 7% peryear.The appropriate market capitalization rate for unleveraged cash flow is 13% peryear.The firm has no outstanding debt.The projected free cash flow of F&GManufacturing Company for the coming year is _______.
113.Consider the free cash flow approach to stock valuation.F&G ManufacturingCompany is expected to have before-tax cash flow from operations of $750,000 in thecoming year.The firm's corporate tax rate is 40%.It is expected that $250,000 ofoperating cash flow will be invested in new fixed assets.Depreciation for the yearwill be $125,000.After the coming year, cash flows are expected to grow at 7% peryear.The appropriate market capitalization rate for unleveraged cash flow is 13% peryear.The firm has no outstanding debt.The total value of the equity of F&GManufacturing Company should beDifficulty: Difficult
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Chapter 18Equity Valuation ModelsRationale: Projected free cash flow = $250,000 (see test bank problem 18.112); V0 =250,000 / (.13 - .07) = $4,166,666.67.

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Term
Spring
Professor
Impson
Tags
Valuation, Dividend yield, P E ratio, Equity Valuation Models

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