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Multiple choice questions on portfolio Management.

1. Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
   1. $26.77
   2. $27.89
   3. $29.05
   4. $30.21
   5. $31.42


2. 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?
   1. $41.58
   2. $42.64
   3. $43.71
   4. $44.80
   5. $45.92


3. Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price?
   1. $37.05
   2. $38.16
   3. $39.30
   4. $40.48
   5. $41.70


4. Huang Company's last dividend was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price?
   1. $30.57
   2. $31.52
   3. $32.49
   4. $33.50
   5. $34.50


5. Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?

   	0	1	2	3	4	5	6
   Growth rate	NA	NA	NA	NA	50%	25%	8%
   Dividends	$0.000	$0.000	$0.000	$0.250	$0.375	$0.469	$0.506

   1. $9.94
   2. $10.19
   3. $10.45
   4. $10.72
   5. $10.99


6. Wall Inc. forecasts that it will have the free cash flows (in millions) shown below. If the weighted average cost of capital is 14% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?

   Year	1	2	3
   Free cash flow	-$20.00	$48.00	$54.00

   1. $2,650.00
   2. $2,789.47
   3. $2,928.95
   4. $3,075.39
   5. $3,229.16


7. Savickas Petroleum’s stock has a required return of 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30)4 = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock’s expected constant growth rate after t = 4, i.e., what is X?
   1. 5.17%
   2. 5.44%
   3. 5.72%
   4. 6.02%
   5. 6.34%

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