## H07-Q10 ## If a firm's expected growth rate increased then its required rate of return would a. decrease. b. fluctuate less than before. C. fluctuate more than before. d. possibly increase, possibly decrease, or possibly remain constant. e. increase. X ## H07 - Q16 ## Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT? Expected dividend, D₁ Current Price, Po Expected constant growth rate $3.00 $50 6.0% a. The stock's expected dividend yield and growth rate are equal. b. The stock's expected dividend yield is 5%. C. The stock's expected capital gains yield is 5%. d. The stock's expected price 10 years from now is $100.00. e. The stock's required return is 10%. x ## H07 - Q23 ## Which of the following statements is CORRECT? a. If a company has a WACC = 12% and its free cash flow is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. b. The free cash flow valuation model for constant growth. Vop = FCF1/(WACC - g), can be used to value firms whose free cash flows are expected to decline at a constant rate, i.e., to grow at a negative rate. C. The value of operations of a stock is the present value of all expected future free cash flows, discounted at the free cash flow growth rate. d. The constant growth model cannot be used for a zero growth stock, where free cash flows are expected to remain constant over time. e. The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.