6 questions
1. Burns Nuclear Power common stock has a beta of 0.8 and currently pays a dividend of $3. The USTreasury bill rate is 2.5% and the market risk premium is 9.5%. What is the value of this stock if aconstant annual growth rate of 4% is expected in dividends and earnings?
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A) $51.15 B) $64.82 C) $73.17 D) $49.18 E) $76.10
2 Company A has a beta of 0.70, while Company B's beta is 1.30. The required return on the stock market is11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return?(Hint: First find the market risk premium, then find the required returns on the stocks.
A) 4.05% B) 3.73% C) 4.90% D) 4.74% E) 3.60%
3 Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 4.20%. You now receive another $8.50 million, which you invest in stocks with an average betaof 0.65. What is the required rate of return on the new portfolio? (Hint: You must first find the market riskpremium, then find the new portfolio beta.)
A) 8.57% B) 9.00% C) 7.80% D) 8.14% E) 7.97%
4. You must estimate the intrinsic value of Mega Dynamics stock in our universe. Mega Dynamics’ current freecash flow is $25 billion, and it is expected to grow at a constant annual rate of 8.5%. The company’s WACC is11%. Mega Dynamics has $200 billion of long-term debt and preferred stock, and there are 30 billion shares ofcommon stock outstanding. What is Mega Dynamics’ estimated intrinsic value per share of common stock?
A) $26.67 B) $29.50 C) $22.67 D) $28.00 E) $24.00
5. Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $18.00 per share. Goode's dividend isexpected to grow at a constant rate of 7.00%. What was the last dividend, D ?
A) $0.77 B) $0.76 C) $0.57 D) $0.62 E) $0.92.
6. MeFirst Corporation has a cumulative preferred share issue that is suppose to pay a quarterly dividend of $2.MeFirst failed to pay 3 consecutive dividends to investors and then managed to pay a common share dividend thevery next quarter. How much cash must MeFirst have paid to each preferred share holder at that time?
A) $2 per share B) $8 per share C) $6 per share D) $10 per share
