   Fi515 Final Exam

Pages: 7 (1601 words) / Published: Sep 29th, 2012
Final Exam Page 1

1. (TCO A) Which of the following statements is NOT correct? (Points : 5) | The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends. The corporate valuation model discounts free cash flows by the required return on equity. The corporate valuation model can be used to find the value of a division. An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements. Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value. | 2. (TCO F) Which of the following statements is correct? (Points : 5) | The MIRR and NPV decision criteria can never conflict. The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be. One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption. The higher the WACC, the shorter the discounted payback period. The MIRR method assumes that cash flows are reinvested at the crossover rate. | 3. (TCO D) The Ackert Company's last dividend was \$1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price? a. \$37.05
b. \$38.16
c. \$39.30
d. \$40.48
e. \$41.70(Points : 20) | |
Reference Chapter 7 Toolkit Section 7.8
D0 \$1.55 g0 to 1 1.5% g1 to 2 1.5% gn 8% rs 12% Year t=1 t=2 D1 D2
Expected Dividends 1.57 1.60 Expected P2 43.11

PV of Expected Dividends \$2.68
PV of Expected P2 34.37 Expected P0 \$37.05

4. (TCO G) The ABC Corporation's budgeted monthly sales are