Question

If the expectation of short-term interest rate remains the same in the future, the expectations theory predicts that the yield curve will be while the liquidity preference theory predicts that the yield curve will be_ A B. C. D. Flat; flat Upward sloping; upward sloping Flat; upward sloping Upward sloping; flat The market capitalization rate on the stock of Aberdeen Wholesale Company is 12%. Its expected ROE is 10% am dots expected EPS is $3.00. if the firm's plow-back ratio is 40%, its P/E ratio will be. A B. C. D. 7.5 4.5 6.5 8.5 Gagliardi Way Corporation has an expected ROE of 15%. If it pays out 30% of its earnings as dividends, its dividend growth rate will be. A B. C. D. 4.5% 10.5% 15.0% 30.0% The current Free cash flow to the firm is $185 million. The interest expense to the firm is $20 million. If the tax rate is 40% and the net debt of the firm increased by $15 million, what is the estimated value of the firm if the FCFE grows at 5% and the cost of equity is 10%? A B. C. D. $2,168 million $2,397 million $3,760 million $3,948 million Cache Creek Manufacturing Company is expected to pay a dividend of $1 in the upcoming year. Dividends are expected to grow at 7% per year. The stock's current price is $20.00. Using the constant growth DDM, the market capitalization rate is A. B. C. D 9% 12% 14% 18% The free cash flow to firm is expected to be $2 million and remains constant forever, the WACC is 10% and the cost of equity is 15%. If the market value of the debt is $5 million, what is the value of the equity? A B. C. D. $15 million $20 million $13.33 million $8.33 million Dick's Co Pays an annual dividend of $6 to its preferred stock. The rate of return on T-Bill is 3% and the market risk premium is 8%. What is the intrinsic value of the preferred stock if the beta of the preferred stock is 1.257 Mountain Development Corporation is expected to pay a dividend of $3.00 in the upcoming year. Predicted to grow at the rate of 8% per year. The firms market capitalization rate is 14%. Using the constant growth DDM, the intrinsic value of the stock is

Answer 1

1. Option c. Flat, Upward Sloping . If interest rates in short term and long term are same the curve is flat. as liquidity preference long term bond have lower lower liquidity, hence higher the risk.

2.Dividend =EPS*(1-Plow back ratio)=3*(1-40%) =1.80
growth =ROE*Plowback ratio =10%*40% =4%
Price =Dividend next year/(Required Rate-growth) =1.80/(12%-4%) =22.50
P/E =Price per share/Earnings Per share=22.50/3 =7.50 (Option a is correct option)

3.Dividend growth rate =ROE*(1-Dividend Payout) =15%(1-30%) =10.50%(Option b is correct option)