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## 04 Jan 6 business questions

6 questions

1. Burns Nuclear Power common stock has a beta of 0.8 and currently pays a dividend of \$3. The USTreasury bill rate is 2.5% and the market risk premium is 9.5%. What is the value of this stock if aconstant annual growth rate of 4% is expected in dividends and earnings?

A) \$51.15 B) \$64.82 C) \$73.17 D) \$49.18 E) \$76.10

2 Company A has a beta of 0.70, while Company B's beta is 1.30. The required return on the stock market is11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return?(Hint: First find the market risk premium, then find the required returns on the stocks.

A) 4.05% B) 3.73% C) 4.90% D) 4.74% E) 3.60%

3 Assume that you manage a \$10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 4.20%. You now receive another \$8.50 million, which you invest in stocks with an average betaof 0.65. What is the required rate of return on the new portfolio? (Hint: You must first find the market riskpremium, then find the new portfolio beta.)

A) 8.57% B) 9.00% C) 7.80% D) 8.14% E) 7.97%

4. You must estimate the intrinsic value of Mega Dynamics stock in our universe. Mega Dynamics’ current freecash flow is \$25 billion, and it is expected to grow at a constant annual rate of 8.5%. The company’s WACC is11%. Mega Dynamics has \$200 billion of long-term debt and preferred stock, and there are 30 billion shares ofcommon stock outstanding. What is Mega Dynamics’ estimated intrinsic value per share of common stock?

A) \$26.67 B) \$29.50 C) \$22.67 D) \$28.00 E) \$24.00

5. Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for \$18.00 per share. Goode's dividend isexpected to grow at a constant rate of 7.00%. What was the last dividend, D ?

A) \$0.77 B) \$0.76 C) \$0.57 D) \$0.62 E) \$0.92.

6. MeFirst Corporation has a cumulative preferred share issue that is suppose to pay a quarterly dividend of \$2.MeFirst failed to pay 3 consecutive dividends to investors and then managed to pay a common share dividend thevery next quarter. How much cash must MeFirst have paid to each preferred share holder at that time?

A) \$2 per share B) \$8 per share C) \$6 per share D) \$10 per share

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