FINANCE EXAM 3 FINAL EXAM TESTED AND
APPROVED NEWLY MODIFIED EXAM 2025/2026
LATEST
Adams Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.05.
What is the firm's cost of common from reinvested earnings based on the
CAPM?
a. 11.30%
b. 11.64%
c. 11.99%
d. 12.35%
e. 12.72% -- ANSWER--a. 11.30%
rRF = 5.00% RPM = 6.00%
b = 1.05 rs = rRF + (RPM × b) = 11.30%
Avery Corporation's target capital structure is 35% debt, 10% preferred, and
55% common equity.
The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the
cost of common from
reinvested earnings is 11.25%, and the tax rate is 40%. The firm will not be
issuing any new common stock. What is Avery's WACC?
a. 8.15%
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, b. 8.48%
c. 8.82%
d. 9.17%
e. 9.54% -- ANSWER--a. 8.15%
Which of the following statements is NOT CORRECT?
a. The free cash flow valuation model discounts free cash flows by the
required return on equity.
b. The free cash flow valuation model can be used to find the value of a
division.
c. An important step in applying the free cash flow valuation model is
forecasting the firm's pro-forma financial statements.
d. Free cash flows are assumed to grow at a constant rate beyond a specified
date in order to find the horizon, or terminal, value.
e. The free cash flow valuation model can be used both for companies that
pay dividends and those that do not pay dividends. -- ANSWER--a. The free
cash flow valuation model discounts free cash flows by the required return on
equity.
A company's free cash flow was just FCF0 = $1.50 million. The weighted
average cost of capital is
WACC = 10.1%, and the constant growth rate is g = 4.0%. What is the current
value of operations?
a. $23.11 million
Page 2 of 15
APPROVED NEWLY MODIFIED EXAM 2025/2026
LATEST
Adams Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.05.
What is the firm's cost of common from reinvested earnings based on the
CAPM?
a. 11.30%
b. 11.64%
c. 11.99%
d. 12.35%
e. 12.72% -- ANSWER--a. 11.30%
rRF = 5.00% RPM = 6.00%
b = 1.05 rs = rRF + (RPM × b) = 11.30%
Avery Corporation's target capital structure is 35% debt, 10% preferred, and
55% common equity.
The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the
cost of common from
reinvested earnings is 11.25%, and the tax rate is 40%. The firm will not be
issuing any new common stock. What is Avery's WACC?
a. 8.15%
Page 1 of 15
, b. 8.48%
c. 8.82%
d. 9.17%
e. 9.54% -- ANSWER--a. 8.15%
Which of the following statements is NOT CORRECT?
a. The free cash flow valuation model discounts free cash flows by the
required return on equity.
b. The free cash flow valuation model can be used to find the value of a
division.
c. An important step in applying the free cash flow valuation model is
forecasting the firm's pro-forma financial statements.
d. Free cash flows are assumed to grow at a constant rate beyond a specified
date in order to find the horizon, or terminal, value.
e. The free cash flow valuation model can be used both for companies that
pay dividends and those that do not pay dividends. -- ANSWER--a. The free
cash flow valuation model discounts free cash flows by the required return on
equity.
A company's free cash flow was just FCF0 = $1.50 million. The weighted
average cost of capital is
WACC = 10.1%, and the constant growth rate is g = 4.0%. What is the current
value of operations?
a. $23.11 million
Page 2 of 15
