1. (TCO A) Which of the following statements is NOT correct? (Points : 5)
a) The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
b) The corporate valuation model discounts free cash flows by the required return on equity.
c) The corporate valuation model can be used to find the value of a division.
d) An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
e) Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.

Correct Answer is b)

2. (TCO F) Which of the following statements is correct? (Points : 5)
a) For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR.
b) To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV.
c) The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself.
d) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years.
e) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.

Correct Answer is e)

3. (TCO D) The Ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?
a. $41.58
b. $42.64
c. $43.71
d. $44.80
e. $45.92
(Points