Basic Finance W6 (MIT)

Basic Finance W6 (MIT)

University

17 Qs

quiz-placeholder

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Basic Finance W6 (MIT)

Basic Finance W6 (MIT)

Assessment

Quiz

Business

University

Practice Problem

Hard

Created by

Pu Chen

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17 questions

Show all answers

1.

OPEN ENDED QUESTION

3 mins • 1 pt

Miller Juice, Inc. traditionally pays out 22% of its earnings as dividends. Last year, Miller's available earnings for ordinary shareholders were $186 million and the book value of its equity was $544 million. What is Miller's growth rate?

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2.

OPEN ENDED QUESTION

3 mins • 1 pt

Miller Juice, Inc. traditionally retains 42% of its earnings for future investments. Last year Miller's return on equity was 12%. What is Miller's growth rate?

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3.

OPEN ENDED QUESTION

3 mins • 1 pt

Bavarian Sausage's free cash flow for the current year is $4 580 000, and investors believe that the company's free cash flow will grow by 4% annually forever. If Bavarian Sausage's weighted average cost of capital is 12%, what is its enterprise value?

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4.

OPEN ENDED QUESTION

3 mins • 1 pt

Bavarian Sausage, Inc.'s enterprise value is $64 000 000, the market value of its debt is $18 000 000 and the company does not have any preferred shares outstanding. If the company has 3 000 000 shares outstanding, what should be Bavarian Sausage's share price?

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5.

OPEN ENDED QUESTION

3 mins • 1 pt

Borrower Corp. has the ability to produce $4 000 000 of free cash flow next year and expects that to grow by 2% per year thereafter. If Borrower's weighted average cost of capital is 13%, then what is the value of Borrower?

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6.

OPEN ENDED QUESTION

3 mins • 1 pt

Equal, Inc. is financed with equal portions of debt and equity. The after-tax cost of debt is 6% and the cost of equity is 8%. If Equal expects next year's free cash flow to be $25 000 000 with growth of 3% thereafter, what is the value of Equal, Inc. to the nearest dollar? Equal's marginal tax rate is 35%.

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7.

OPEN ENDED QUESTION

3 mins • 1 pt

Undetermined Corporation currently has a 10% weighted average cost of capital. It is concerned that its after-tax cost of debt will increase in the near future by 2%. If Undetermined finances its projects with 30% debt, then what will the new weighted average cost of capital for Undetermined be?

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