1.A firm has:

§ Free cash flow to equity = $4.0 million.

§ Cost of equity = 12 percent.

§ Long-term expected growth rate = 5 percent.

§ Value of equity per share = $57.14 per share. 

What will happen to the value of the firm if free cash flow to equity decreases to $3.2 million?

A)   The value will increase.

B)   The value will decrease.

C)   The value will remain the same.

D)   There is insufficient information to tell.

2.A firm has:

§ Free cash flow to equity = $4.0 million.

§ Cost of equity = 12 percent.

§ Long-term expected growth rate = 5 percent.

§ Value of equity per share = $57.14 per share. 

What will happen to the value of equity if the cost of equity decreases to 10 percent?

A)   The value will increase.

B)   The value will decrease.

C)   The value will remain the same.

D)   There is insufficient information to tell.

3.A firm has:

§ Free cash flow to the firm = $4.0 million.

§ Weighted average cost of capital = 10 percent.

§ Total debt = $30.0 million.

§ Long-term expected growth rate = 5 percent.

§ Value of the firm = $50.00 per share.

What will happen to the value of the firm if the weighted average cost of capital increases to 12 percent?

A)   The value will increase.

B)   The value will decrease.

C)   The value will remain the same.

D)   There is insufficient information to tell.

答案和详解如下：

1.A firm has:

§ Free cash flow to equity = $4.0 million.

§ Cost of equity = 12 percent.

§ Long-term expected growth rate = 5 percent.

§ Value of equity per share = $57.14 per share. 

What will happen to the value of the firm if free cash flow to equity decreases to $3.2 million?

A)   The value will increase.

B)   The value will decrease.

C)   The value will remain the same.

D)   There is insufficient information to tell.

The correct answer was B)

Everything else being constant, a decrease in free cash flow to equity should decrease the value of the firm.

2.A firm has:

§ Free cash flow to equity = $4.0 million.

§ Cost of equity = 12 percent.

§ Long-term expected growth rate = 5 percent.

§ Value of equity per share = $57.14 per share. 

What will happen to the value of equity if the cost of equity decreases to 10 percent?

A)   The value will increase.

B)   The value will decrease.

C)   The value will remain the same.

D)   There is insufficient information to tell.

The correct answer was A)

Everything else being constant, a decrease in the relevant required rate of return should increase the value of the equity per share.

3.A firm has:

§ Free cash flow to the firm = $4.0 million.

§ Weighted average cost of capital = 10 percent.

§ Total debt = $30.0 million.

§ Long-term expected growth rate = 5 percent.

§ Value of the firm = $50.00 per share.

What will happen to the value of the firm if the weighted average cost of capital increases to 12 percent?

A)   The value will increase.

B)   The value will decrease.

C)   The value will remain the same.

D)   There is insufficient information to tell.

The correct answer was B)

Everything else being constant, an increase in the relevant required rate of return should decrease the value of the firm.