McKenzie, Inc

question 54

Multiple Choice

McKenzie, Inc., reported EBIT of $8.5 million for last year. Depreciation expense totaled $5 million and capital expenditures came to $2 million. Free cash flow is expected to grow at a rate of 2.5% for the foreseeable future. McKenzie faces a 21 percent tax rate and has a .50 debt to equity ratio with $20 million (market value) in debt outstanding. McKenzie's equity beta is 1.4, the risk-free rate is currently 5 percent and the market risk premium is estimated to be 7.5 percent. McKenzie has 10 million shares of common stock outstanding. What is the current value of a share of McKenzie stock (in millions) ?

• A)$6.62
• B)$7.32
• C)$8.45
• D)$9.76
• E)$10.25

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Definitions:

Contingency Management

A behavior modification technique that rewards positive behavior or punishes negative behavior to enhance motivation and encourage changes in behavior.

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