Exhibit 14 From Year 2019 Onward Growth in OFCF Is Expected to

question 47

Multiple Choice

Exhibit 14.8
Use the Information Below for the Following Problem(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
$$\begin{array} { c c } \text { Year } & \text { Grapth Rata } \\\hline 2011 & 25 \% \\2012 & 20 \% \\2013 & 15 \% \\2014 & 10 \% \\2015 & 12 \% \\2016 & 14 \% \\2017 & 16 \% \\2018 & 18 \%\end{array}$$
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8.Calculate the intrinsic value of the stock now (Year 2010) .

• A) $155.55
• B) $173.27
• C) $196.44
• D) $207.79
• E) $108.30

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Definitions:

Average Total Cost

The total cost of production divided by the quantity produced, indicating the average cost per unit of output.

Average Variable Cost

Average variable cost (AVC) refers to the total variable costs per unit of output, covering expenses that change with the level of production, such as materials and labor.

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers, resulting in a stable market condition.

Long-run Supply Curve

A graphical representation of the quantities of goods and services that producers are willing to offer for sale at different prices in the long run, when all inputs can be varied.