McKenzie,Inc

question 7

Multiple Choice

McKenzie,Inc.reported net income 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 40% tax rate and has a 0.50 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% and the market risk premium is estimated to be 7.5%.McKenzie has 10 million shares of common stock outstanding.What is the current value of a share of McKenzie stock?

• A) $6.62
• B) $7.32
• C) $8.45
• D) $9.12
• E) $10.25

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