If a Company's Free Cash Flows Are Expected to Grow

question 9

Multiple Choice

If a company's free cash flows are expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

• A) The company's stock's dividend yield is 5%.
• B) The value of operations is expected to decline in the future.
• C) The company's WACC must be equal to or less than 5%.
• D) The company's value of operations one year from now is expected to be 5% above the current price.
• E) The expected return on the company's stock is 5% a year.

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Definitions:

Federally Chartered Banks

Banks that are authorized to operate by the federal government rather than by state governments, often subject to different regulations and oversight.

Federal Reserve System

The central banking system of the United States, responsible for monetary policy, regulation of financial institutions, and maintaining financial stability.

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This term seems vague without context and might not be a defined economic or general key term without additional information; thus, clarification is needed.

Thrift Institution

A financial organization that primarily accepts savings deposits and provides mortgage and loan services.