3. JCI Incorporated pays an annual dividend of 5.00 Canadian dollars (C$). The company is expected to continue paying this dividend with no future growth in dividends. Investors require a 9% rate of return on this investment. The current risk-free rate is 4%. The current stock value of JCI Incorporated is closest to:
4. The current stock price of MCD is $89.00. The current dividend for MCD is $2.50, and dividends are expected to grow at a constant rate of 8%. The required return for MCD is closest to:
5- An analyst has determined that the required rate of return for an equity investment in shares of Global Partners is 10.5%. If the risk-free rate is 6% and Global's beta is 1.2, the current equity risk premium is closest to:
6. Restoration Software is a growth stock that has never paid a dividend.
Free cash flow is forecasted to be negative for the next five years because of Restorations aggressive expansion plans. Restoration has always received an unqualified opinion from its auditors and is generally considered to have high-quality earnings. Which of the following models is most appropriate to value Restoration?
A. Free cash flow to the firm model.
B. Free cash flow to equity model.
C. Residual income model.
7. Which of the following is most appropriate to use as an estimate of the market risk premium in the capital asset pricing model (CAPM)?
A. Geometric mean of historical rerurns on a market index.
B. Arithmetic mean of historical returns on a market index.
C. One-year forecasted market index dividend yield plus long-term earnings growth forecast minus long-term government bond yield.
8. CFCRegs Inc. just paid a dividend of $2.00 per share. The required return is 13%, and the stock is currently trading at $30.28 per share. The growrh rate implied by the Gordon growrh model is closest ro:
9. Aerosail Company exhibits the following fundamental characteristics:
• Profit margins are higher than the industry average but have fallen over the last four years from 45% to 32%.
• Free cash flow to equity is positive and has grown 18% in the last two years.
• Dividend payout has increased from 5% to 15% in the last three years.
A. Transition Gordon growth
B. Transition Multi-stage
10. An analyst forecasts dividends over the next three years for Aerosail Company of $1.00, $2.00, and $2.50. He forecasts a terminal value in three years of $52.00. Aerosail is currently selling for $39.71. The implied required return based on the analyst forecast is closest to:
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