Q6. Reynolds has been provided with the information contained in Tables 1 and 2 below, where the estimated value of the emerging market firm is presented based on a five-year cash flow forecast.

Table 1: Real Valuation of Emerging Market Firm

Table 2: Nominal Valuation of Emerging Market Firm

Note in Table 2 that the expected inflation rate is 35% in year 1 and 15% in years 2 through 5. Which of the following most accurately reflects the effect of an increase in inflation to 35% over years 2 through 5 on firm value in both real and nominal term?

          Real Value                                         Nominal Value

A)  Decreases by at least 323         Decreases by at least 323

B)  No change                                      Decreases by at least 323

C)  No change                                      No change

Q7. Wavington Enterprises is headquartered in an emerging market nation that is expected to have 27% inflation over the next year. Charleston Johnson expects the local government to be successful in bringing inflation under control, and anticipates that it will fall to 20% in the second year and 10% in the third year, where he expects inflation to stabilize. Johnson predicts that by year 3, Wavington will have nominal free cash flow of $187 million growing at 4% annually in real terms. In view of his optimistic outlook, he is considering an investment in Wavington, and has calculated the real WACC for Wavington at 8%. The nominal continuing value of Wavington in year 3 is closest to:

A)   $4,675.

B)   $4,250.

C)   $4,862.

[此贴子已经被作者于2009-3-6 14:54:31编辑过]

thanks