Question

Question 80

During the coming year, Gold & Gold wants to increase its free cash flow by $180 million, which should result in a higher stock price. The CFO has made these projections for the upcoming year:

∙	EBIT is projected to equal $852 million.
∙	Gross capital expenditures are expected to total to $360 million versus depreciation of $120 million, so its net capital expenditures should total $240 million.
∙	The tax rate is 25%.
∙	There will be no changes in cash or marketable securities, nor will there be any changes in notes payable or accruals.

What increase in net working capital (in millions of dollars) would enable the firm to meet its target increase in FCF?

	a.	$175
	b.	$379
	c.	$316
	d.	$219
	e.	$263

Question 82

Orwell Building Supplies' 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 (r _s) is 12%. What is the best estimate of the current stock price?

	a.	$41.58
	b.	$42.64
	c.	$43.71
	d.	$45.92
	e.	$44.80

Question 96

Which of the following statements is CORRECT?

	a.	One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners.
	b.	Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns.
	c.	Relative to sole proprietorships, corporations generally face fewer regulations, which makes raising capital easier for corporations.
	d.	Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns.
	e.	There is no good reason to expect a firm's bondholders and stockholders to react differently to the types of new asset investments a firm makes.

Answer 1

1.option d is correct

2. Option b is correct

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