Question 1

The Pekay Company has FCFE of $800. FCFE is expected to grow by 7% next year. The cost of capital is 7% and the level of debt is $4000. The number of shares outstanding is 700. Calculate the firm's share price.
A) $44.25
B) $65.12
C) $38.19
D) $40.76
E) $50.56

Accepted Answer

The answer of The Pekay Company has FCFE of $800....

Question 2

The Peterson Company has FCFF of $1000. FCFF is expected to grow by 12% next year. The cost of capital is 12% and the level of debt is $5000. The number of shares outstanding is 500. Calculate the firm's share price.
A) $44
B) $55
C) $34.19
D) $47.23
E) $50

Accepted Answer

The answer of The Peterson Company has FCFF of $1000....

Question 3

Exhibit 9-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/ Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2009.
(000s omitted) 
$\begin{array}{lr}
 \text { Sales } &5,450 \
 \text { Cost of Goods Sold } &\underline {3,250 }\
 \text { Gross Profit } & 2,200 \
 \text {Depreciation  } &820 \
 \text {Operating Expenses  } &470 \
 \text { Administration Exp. } &\underline {115 }\
 \text {Operating Profit  } & 795 \
 \text { Interest Expense } &\underline {88} \
 \text { Profit Before Taxes } & 707 \
 \text {Taxes  } &\underline {247} \
 \text { Net Income } & 460 \
 \text {Dividende   } &250
\end{array}$ $\begin{array}{lrlr}
\text { Assets } &&  {\text { Liabilities }} \
\hline \text { Cash } & 100 & \text { Notes Payable } & 850 \
\text { Accounts Receivable } & 1,250 & \text { Accounts Payable } &  \underline{1,550} \
\text { Inventory } &  \underline{1,125} & \text { Total Current Liab. } & {2,400}\
\text { Total Current Assets } &  {2,475}&{\text { Long Term Debt }} & 425 \
\text { Net Fixed Assets } &  \underline{1,450} & \text { Common Stock } &400 \
 {\text { Total Assets }} &{3,925} & \text { Retained Earnings } & \underline{700 }\
&&(\text { Total Liab \& Earnings }&3,925\
\end{array}$
-Refer to Exhibit 9-9. Calculate Rollerball Corporation's Total Asset Turnover.
A) 0.72
B) 0.85
C) 1.39
D) 1.65
E) 2.31

Accepted Answer

Total Asset Turnover is calculated as Sales divided by Total Assets. For Rollerball Corporation, this is $5,450 / 3,925 = 1.39$.

Question 4

Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE. $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 10 \% \
2011 & 15 \% \
2012 & 20 \% \
2013 & 25 \% \
2014 & 20 \% \
2015 & 15 \% \
2016 & 10 \% \
2017 & 7 \%
\end{array}$$ 
From year 2018 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 9-7. Calculate the intrinsic value of the stock now (Year 2009).
A) $55
B) $48.52
C) $77.79
D) $35.77
E) $62.34

Accepted Answer

The answer of Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR...

Question 5

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 25 \% \
2011 & 20 \% \
2012 & 15 \% \
2013 & 10 \% \
2014 & 12 \% \
2015 & 14 \% \
2016 & 16 \% \
2017 & 198
\end{array}$$ 
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the intrinsic value of the stock now (Year 2009).
A) $155.55
B) $173.27
C) $196.44
D) $207.79
E) $108.30

Accepted Answer

The answer of Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR...

Question 6

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 25 \% \
2011 & 20 \% \
2012 & 15 \% \
2013 & 10 \% \
2014 & 12 \% \
2015 & 14 \% \
2016 & 16 \% \
2017 & 198
\end{array}$$ 
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the weighted average cost of capital (WACC).
A) 8.2%
B) 9.4%
C) 9.0%
D) 10.3%
E) 7.3%

Accepted Answer

The weighted average cost of capital (WACC) is calculated using the formula: WACC = (E/V) * Re + (D/V) * Rd * (1 - Tc), where E is the market value of equity, D is the market value of debt, V is the total market value (E + D), Re is the cost of equity, Rd is the cost of debt, and Tc is the corporate tax rate. Given that the proportion of equity is 55% and the proportion of debt is 45%, the cost of equity (Re) can be calculated using the Capital Asset Pricing Model (CAPM): Re = Rf + β*(Rm - Rf), where Rf is the risk-free rate, β is the beta of the stock, and (Rm - Rf) is the equity risk premium. Substituting the given values: Re = 5% + 1.1*(4%) = 9.4%. The after-tax cost of debt (Rd*(1 - Tc)) is 9%*(1 - 0.25) = 6.75%. Therefore, WACC = 0.55*9.4% + 0.45*6.75% = 5.17% + 3.0375% = 8.2075%, which rounds to approximately 8.2%.

Question 7

Exhibit 9-6
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm. $\begin{array}{llcc}
  \text {LIFO reserve  } & 60 \
 \text { Net plant, property, and equipment  } & 1325 \
  \text { Other assets  } &30  \
 \text {Goodwill  } &325  \
  \text {  Accumulated Goodwill amortized  } &  65\
 \text { PV of Operating leases } & 140 \
  \text { Tax benefit from interest on expenses   } &  10\
 \text {Tax benefit from interest on leases   } &5  \
  \text { Taxes on non-operating income  } &2  \
 \text {Implied interest on op. lease  } & 9.5 \
  \text {   Increase in LIFO reserve  } & 12 \
 \text { Goodwill amortization  } & 15 \
  \text { Operating profit   } &  550\
 \text { Income tax expense  } & 215 \
  \text {  Net working capital  } & 440 \
 \text { WACC } &  0.12\
\end{array}$

-Refer to Exhibit 9-6. Calculate the firm's EVA.
A) 85.2
B) 72.3
C) 65.8
D) 89.5
E) 78.2

Accepted Answer

The answer of Exhibit 9-6
USE THE FOLLOWING INFORMATION TO ANSWER...

Question 8

Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE. $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 10 \% \
2011 & 15 \% \
2012 & 20 \% \
2013 & 25 \% \
2014 & 20 \% \
2015 & 15 \% \
2016 & 10 \% \
2017 & 7 \%
\end{array}$$ 
From year 2018 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 9-7. Calculate the present value now (Year 2009) of FCFE during the period of constant growth (that is for years 2018 onwards).
A) $7,153,368
B) $9,703,476
C) $15,558,341
D) $8,986,012
E) $6,789,125

Accepted Answer

The cost of equity is calculated using the CAPM formula: Risk-free rate + Beta * Equity risk premium = 5% + 1.3 * 4% = 10.2%. The FCFE for 2018 is calculated by growing the 2017 FCFE by 5%. The present value of the FCFE from 2018 onwards is calculated using the Gordon Growth Model: FCFE_2018 / (Cost of equity - Growth rate) = $7,153,368.

Question 9

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 25 \% \
2011 & 20 \% \
2012 & 15 \% \
2013 & 10 \% \
2014 & 12 \% \
2015 & 14 \% \
2016 & 16 \% \
2017 & 198
\end{array}$$ 
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the present value now (Year 2009) of OFCF during the period of constant growth (that is for years 2018 onwards).
A) $19,644,612
B) $15,558,546
C) $17,377,494
D) $20,779,025
E) $10,779,025

Accepted Answer

The present value of OFCF during the period of constant growth is calculated using the Gordon Growth Model. First, calculate the OFCF for 2018 using the growth rates provided, then apply the formula for the present value of a perpetuity growing at a constant rate.

Question 10

Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE. $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 10 \% \
2011 & 15 \% \
2012 & 20 \% \
2013 & 25 \% \
2014 & 20 \% \
2015 & 15 \% \
2016 & 10 \% \
2017 & 7 \%
\end{array}$$ 
From year 2018 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 9-7. Calculate the present value now (Year 2009) of FCFE during the period of increasing growth (that is for years 2010 to 2013).
A) $1,719,119
B) $1,715,784
C) $1,115,195
D) $1,434,903
E) $1,809,171

Accepted Answer

The answer of Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR...

Question 11

Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE. $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 10 \% \
2011 & 15 \% \
2012 & 20 \% \
2013 & 25 \% \
2014 & 20 \% \
2015 & 15 \% \
2016 & 10 \% \
2017 & 7 \%
\end{array}$$ 
From year 2018 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 9-7. Calculate the required rate of return on equity.
A) 5%
B) 9.2%
C) 10.2%
D) 10%
E) 4.3%

Accepted Answer

The required rate of return on equity can be calculated using the Capital Asset Pricing Model (CAPM), which is given by the formula: Required Return = Risk-Free Rate + Beta * (Market Risk Premium). Given the yield on 10-year Treasury notes as the risk-free rate (5%) and the equity risk premium (4%), and a beta of 1.3, the calculation is: Required Return = 5% + 1.3 * 4% = 5% + 5.2% = 10.2%.

Question 12

Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE. $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 10 \% \
2011 & 15 \% \
2012 & 20 \% \
2013 & 25 \% \
2014 & 20 \% \
2015 & 15 \% \
2016 & 10 \% \
2017 & 7 \%
\end{array}$$ 
From year 2018 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 9-7. Calculate the present value now (Year 2009) of FCFE during the period of declining growth (that is for years 2014 to 2017).
A) $1,719,119
B) $1,715,784
C) $1,115,195
D) $1,434,903
E) $1,809,171

Accepted Answer

The answer of Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR...

Question 13

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 25 \% \
2011 & 20 \% \
2012 & 15 \% \
2013 & 10 \% \
2014 & 12 \% \
2015 & 14 \% \
2016 & 16 \% \
2017 & 198
\end{array}$$ 
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the required rate of return on equity.
A) 8.2%
B) 9.4%
C) 9.0%
D) 10.3%
E) 7.3%

Accepted Answer

The answer of Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR...

Question 14

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 25 \% \
2011 & 20 \% \
2012 & 15 \% \
2013 & 10 \% \
2014 & 12 \% \
2015 & 14 \% \
2016 & 16 \% \
2017 & 198
\end{array}$$ 
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the total intrinsic value of the firm.
A) $19,644,612
B) $15,558,546
C) $17,327,250
D) $20,830,412
E) $10,779,025

Accepted Answer

The total intrinsic value of the firm can be calculated using the Weighted Average Cost of Capital (WACC) to discount the future Operating Free Cash Flows (OFCF), including the terminal value which captures the constant growth from 2018 onwards. Given the complexity and the need for specific financial formulas and calculations, which involve calculating the present value of each year's projected OFCF growth, adjusting for the terminal value at a constant growth rate, and then summing these present values while considering the firm's capital structure (equity and debt proportions) and costs (cost of equity and after-tax cost of debt), the correct answer is derived through a detailed financial analysis.

Question 15

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 25 \% \
2011 & 20 \% \
2012 & 15 \% \
2013 & 10 \% \
2014 & 12 \% \
2015 & 14 \% \
2016 & 16 \% \
2017 & 198
\end{array}$$ 
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the present value now (Year 2009) of OFCF during the period of declining growth (that is for years 2014 to 2017).
A) $1,044,612
B) $1,554,823
C) $1,898,096
D) $1,327,547
E) $1,579,326

Accepted Answer

The answer of Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR...

Question 16

Exhibit 9-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/ Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2009.
(000s omitted) 
$\begin{array}{lr}
 \text { Sales } &5,450 \
 \text { Cost of Goods Sold } &\underline {3,250 }\
 \text { Gross Profit } & 2,200 \
 \text {Depreciation  } &820 \
 \text {Operating Expenses  } &470 \
 \text { Administration Exp. } &\underline {115 }\
 \text {Operating Profit  } & 795 \
 \text { Interest Expense } &\underline {88} \
 \text { Profit Before Taxes } & 707 \
 \text {Taxes  } &\underline {247} \
 \text { Net Income } & 460 \
 \text {Dividende   } &250
\end{array}$ $\begin{array}{lrlr}
\text { Assets } &&  {\text { Liabilities }} \
\hline \text { Cash } & 100 & \text { Notes Payable } & 850 \
\text { Accounts Receivable } & 1,250 & \text { Accounts Payable } &  \underline{1,550} \
\text { Inventory } &  \underline{1,125} & \text { Total Current Liab. } & {2,400}\
\text { Total Current Assets } &  {2,475}&{\text { Long Term Debt }} & 425 \
\text { Net Fixed Assets } &  \underline{1,450} & \text { Common Stock } &400 \
 {\text { Total Assets }} &{3,925} & \text { Retained Earnings } & \underline{700 }\
&&(\text { Total Liab \& Earnings }&3,925\
\end{array}$
-Refer to Exhibit 9-9. Calculate Rollerball Corporation's Net Profit Margin.
A) 3.9%
B) 8.4%
C) 14.6%
D) 40.4%
E) 41.8%

Accepted Answer

Net Profit Margin is calculated as (Net Income / Sales) * 100. For Rollerball Corporation, this is (460 / 5,450) * 100 = 8.4%.

Question 17

Exhibit 9-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/ Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2009.
(000s omitted) 
$\begin{array}{lr}
 \text { Sales } &5,450 \
 \text { Cost of Goods Sold } &\underline {3,250 }\
 \text { Gross Profit } & 2,200 \
 \text {Depreciation  } &820 \
 \text {Operating Expenses  } &470 \
 \text { Administration Exp. } &\underline {115 }\
 \text {Operating Profit  } & 795 \
 \text { Interest Expense } &\underline {88} \
 \text { Profit Before Taxes } & 707 \
 \text {Taxes  } &\underline {247} \
 \text { Net Income } & 460 \
 \text {Dividende   } &250
\end{array}$ $\begin{array}{lrlr}
\text { Assets } &&  {\text { Liabilities }} \
\hline \text { Cash } & 100 & \text { Notes Payable } & 850 \
\text { Accounts Receivable } & 1,250 & \text { Accounts Payable } &  \underline{1,550} \
\text { Inventory } &  \underline{1,125} & \text { Total Current Liab. } & {2,400}\
\text { Total Current Assets } &  {2,475}&{\text { Long Term Debt }} & 425 \
\text { Net Fixed Assets } &  \underline{1,450} & \text { Common Stock } &400 \
 {\text { Total Assets }} &{3,925} & \text { Retained Earnings } & \underline{700 }\
&&(\text { Total Liab \& Earnings }&3,925\
\end{array}$
-Refer to Exhibit 9-9. Calculate Rollerball Corporation's Total Assets/Equity ratio.
A) 3.57
B) 4.28
C) 5.61
D) 7.35
E) 9.81

Accepted Answer

The Total Assets/Equity ratio is calculated as Total Assets divided by Total Equity. Total Assets are $3,925, and Total Equity (Common Stock + Retained Earnings) is $1,100. Thus, the ratio is $3,925 / $1,100 = 3.57.

Question 18

Exhibit 9-6
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm. $\begin{array}{llcc}
  \text {LIFO reserve  } & 60 \
 \text { Net plant, property, and equipment  } & 1325 \
  \text { Other assets  } &30  \
 \text {Goodwill  } &325  \
  \text {  Accumulated Goodwill amortized  } &  65\
 \text { PV of Operating leases } & 140 \
  \text { Tax benefit from interest on expenses   } &  10\
 \text {Tax benefit from interest on leases   } &5  \
  \text { Taxes on non-operating income  } &2  \
 \text {Implied interest on op. lease  } & 9.5 \
  \text {   Increase in LIFO reserve  } & 12 \
 \text { Goodwill amortization  } & 15 \
  \text { Operating profit   } &  550\
 \text { Income tax expense  } & 215 \
  \text {  Net working capital  } & 440 \
 \text { WACC } &  0.12\
\end{array}$

-Refer to Exhibit 9-6. Calculate the dollar cost of capital.
A) 286.2
B) 207
C) 234.36
D) 238.44
E) 302.9

Accepted Answer

The answer of Exhibit 9-6
USE THE FOLLOWING INFORMATION TO ANSWER...

Question 19

Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF $$\begin{array} { c c } 
\text { Year } & \text { Grawth Rate } \
\hline 2010 & 25 \% \
2011 & 20 \% \
2012 & 15 \% \
2013 & 10 \% \
2014 & 12 \% \
2015 & 14 \% \
2016 & 16 \% \
2017 & 198
\end{array}$$ 
From year 2018 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 9-8. Calculate the present value now (Year 2009) of OFCF during the period of declining growth (that is for years 2010 to 2013).
A) $1,044,612
B) $1,554,823
C) $1,898,096
D) $1,327,547
E) $1,579,326

Accepted Answer

The answer of Exhibit 9-8
USE THE FOLLOWING INFORMATION IS FOR...

Question 20

Exhibit 9-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/ Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2009.
(000s omitted) 
$\begin{array}{lr}
 \text { Sales } &5,450 \
 \text { Cost of Goods Sold } &\underline {3,250 }\
 \text { Gross Profit } & 2,200 \
 \text {Depreciation  } &820 \
 \text {Operating Expenses  } &470 \
 \text { Administration Exp. } &\underline {115 }\
 \text {Operating Profit  } & 795 \
 \text { Interest Expense } &\underline {88} \
 \text { Profit Before Taxes } & 707 \
 \text {Taxes  } &\underline {247} \
 \text { Net Income } & 460 \
 \text {Dividende   } &250
\end{array}$ $\begin{array}{lrlr}
\text { Assets } &&  {\text { Liabilities }} \
\hline \text { Cash } & 100 & \text { Notes Payable } & 850 \
\text { Accounts Receivable } & 1,250 & \text { Accounts Payable } &  \underline{1,550} \
\text { Inventory } &  \underline{1,125} & \text { Total Current Liab. } & {2,400}\
\text { Total Current Assets } &  {2,475}&{\text { Long Term Debt }} & 425 \
\text { Net Fixed Assets } &  \underline{1,450} & \text { Common Stock } &400 \
 {\text { Total Assets }} &{3,925} & \text { Retained Earnings } & \underline{700 }\
&&(\text { Total Liab \& Earnings }&3,925\
\end{array}$
-Refer to Exhibit 9-9. Calculate the return on equity (ROE) for Rollerball Corporation and the Industry. $\begin{array}{lrr}
&\text { Rollerball } & \text { Industry Average } \
\hline\text { I. } & 115.0 \% & 67.5 \% \
\text { II. } & 65.7 \% & 33.0 \% \
\text { III. } & 41.8 \% & 33.0 \% \
\text { IV. } & 19.1 \% & 15.7 \% \
\text { V. } & 87 \% & 157 \%
\end{array}$
A) I
B) II
C) III
D) IV
E) V

Accepted Answer

The answer of Exhibit 9-9
USE THE FOLLOWING INFORMATION FOR THE...

Quiz 9: Company Analysis and Stock Valuation

The Pekay Company has FCFE of $800. FCFE is expected to grow by 7% next year. The cost of capital is 7% and the level of debt is $4000. The number of shares outstanding is 700. Calculate the firm's share price.

The Peterson Company has FCFF of $1000. FCFF is expected to grow by 12% next year. The cost of capital is 12% and the level of debt is $5000. The number of shares outstanding is 500. Calculate the firm's share price.