Basic Finance W6 (MIT)

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?

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?

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?

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?

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?

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%.

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?

Which is true concerning preferred shares?

• Preferred shares are considered debt on the company balance sheet.

• Preferred shareholders have voting rights for the company board of directors.

• Preferred share payments are variable like ordinary share payments.

• Preferred shares are viewed as less risky than a company's ordinary shares.

The first public sale of company shares to outside investors is called a(n):

• seasoned equity offering

• shareholders' meeting

• initial public offering

• proxy fight

Which statement about ordinary shareholders is incorrect?

• Shareholders only have a residual claim.

• Shareholders have precedence over all other claimholders in the case of bankruptcy.

• Shareholders have voting rights.

• Shareholders are the ultimate owners of a corporation.