Just a word of warning, I don’t have the answers to these questions. A friend of mine sent me a document with a bunch of questions sans answers. I’m just picking out the ones that are hard or annoying. ------------------ The appropriate measures of free cash flow and discount rate to use when estimating the total value of a firm, respectively, are: Measure of free cash flow/////Discount rate A. operating cash flow before interest payments on debt/////cost of equity B. operating cash flow before interest payments on debt/////weighted average cost of capital C. operating cash flow before interest payments on debt but after deducting base capital expenditures/////cost of equity D. operating cash flow before interest payments on debt but after deducting base capital expenditures/////weighted average cost of capital ------------------------------- On January 1, 2008, Abel Moreno, CFO of Monterrey Mining & Metals (MMM), gathered the following data to determine the attractiveness of the company’s common stock: Dividends per share in 2001 2 pesos Dividends per share in 2007 3 pesos Expected return on the market 17% Expected nominal risk-free return 9% MMM’s beta 1.8 MMM share price, January 1, 2008 19 pesos Based on the information gathered, MMM stock’s intrinsic value and its attractiveness on January 1, 2008, respectively, were: Stock’s intrinsic value closest to/////Stock’s attractiveness A. 18.29 pesos/////Over-valued B. 18.29 pesos/////Under-valued C. 19.57 pesos/////Over-valued D. 19.57 pesos/////Under-valued ---------------------------------- Jim Klein, CFA, gathered the following data about India Garments Company in an effort to determine the growth rate of dividends and the payout ratio implied in the company’s stock price: Stock price $40 Stock’s required return 12% Consensus estimate of next year’s dividend $2.00 Company’s return on equity 10% The company’s dividend growth rate according to the Gordon model and the payout ratio, respectively, are closest to: Dividend growth rate/////Payout ratio A. 5%/////50% B. 5%/////58% C. 7%/////30% D. 7%/////42% ------------------------------------ The most accurate characterization of the nature of abnormal returns relating to an anomaly and a source of unreliability of an anomaly, respectively, are: Nature of abnormal returns/////Source of unreliability of an anomaly A. Persistent/////Behavioral bias B. Persistent/////Survivorship bias C. Momentary/////Behavioral bias D. Momentary/////Survivorship bias --------------------------------------- Robert Wu, CFA, gathered the following data on Westminster Property Developers Inc: Earnings per share - most recent year $2.00 Expected growth rate of dividends 5.10% Dividend payout ratio 60% Stock’s beta 1.50 Market risk premium 5.60% Risk-free rate 4.2% Company’s weighted average cost of capital 12% Wu’s best estimate for the company’s price per share would be closest to: A. $16.00. B. $16.82. C. $17.39. D. $18.28.
- d 4.a 5.b
I would say: 1D 2A. Just a guess: the stock seems to be speculative, dividends have gone up 50%, that’s a supernormal growth, when the market expected return on this stock is 23.4% from the CAPM model. 3C 40=2/(.12-g)=>g=7%, since ROE=10%=> RR=70%, payout is 1-RR=30% 4A 5B P=2*0.6*1.051/(1.5*5.6%+4.2%-5.1%)=16.816~B
1d 2 undervalued/ how do you find the intrinsic value ? 3A 4A 5B
- D 2. D 3. C 4. B 5. B
kant why dont u fwd this doc, so i can look, these questions look damn testable. pepphell at gmail
i got 3 C as well…made a mistake… BlueCollarHero - how did you calculate intrinsic value?
historical growth rate = (3/2)^(1/6) = 1.07 - 1 = 7% cost of equity = 1.8*(0.17 - .09) + 0.09 = .234 (3*1.07) / (.234 - 0.07) = 19.57
pepp Wrote: ------------------------------------------------------- > kant why dont u fwd this doc, so i can look, these > questions look damn testable. > > pepphell at gmail they are all from 2008 cfa mock #1